Introduction

Letter of credit is an undertaking of the Bank for account of the importer to pay the exporter the value of the goods. Bank of China promises to honor such undertaking provided the required documents are submitted and the terms and conditions of the credit are complied with.

Features

1. Improve negotiating status - issuing of letter of credit means that the importer provides the exporter with conditional payment commitment of the bank, a bank’s credit, in addition to its commercial credit. It improves credit and negotiating status of the importer, so may be able to negotiate for a low purchase price and better terms.

2. Ensure goods – ensure to the extent that documents evidenced that the goods supplied are the goods ordered.

3. Reduce capital occupied - if issuing an letter of credit upon given credit facility, importer need not spend self-owned capital in the stages of issuing the letter of credit in the issuing bank, exporter’s preparation of goods, and delivery.