The Advantages of a Bank Letter of Credit
Surely, you would like to always decrease the incidence of risk when you are investing in a project or lending money to a specific contractor. As in recent half a decade or so, Dubai, including other cities in the UAE region, has witnessed a surge in real estate, construction and heavyweight trade deals, the significance of a bank letter of credit has increased by several notches. It is simply an effective financial instrument that helps to form healthy trade relationships by considerably reducing the level of risk, particularly for commercial trading partners and associated parties.
Expanding International Business
The letter provides a unique power to the trading partners to go for deals with lesser known parties on the global front. Due to the decreased level of risk, the concerned partners and stakeholders can have more lucrative options to expand business beyond a single country and reach various corners of the world.
The customizable properties of the letter of credit make it a desirable document when signing a trade deal. The involved partners can put their own terms and conditions in the regulatory framework. Also, the details of the letter can continuously keep on changing after every transaction. This makes the letter highly functional from a commercial perspective.
Assurance of Payment to The Seller
If you are the seller, then through the letter of credit you get a full-proof assurance about the payment for the goods or services that you sell to a particular party, irrespective of the nature of business or location of the buyer, in a legal framework. You don’t have to fear about stalling of payment flow or not receiving the full amount for the good that you sell.
A Robust Credit Certificate
Now, suppose you are the buyer in an international trade deal. You need extra credibility on the global platform to get involved in a specific trade deal. The letter of credit effectively helps you to increase your creditworthiness with its own terms and well-tailored conditions. You can use it to legally import or purchase the goods or services that you have been targeting.
No Credit Risk
As already mentioned, the credit risk attached to the instrument is minimal. When you are the seller or the exporter, you don’t have to be concerned about any sudden bankruptcy of the buyer or any similar trading partner. The letter compels the issuing authority, a bank, to pay you for the services that you have sold.
Prosper in International Trade
If you have an objective to prosper in international trade, try to get a letter of credit that will provide you the financial support.