What is an avantage of using a letter of credit?

Question

What is an avantage of using a letter of credit?

Answer 1

It protects you from a bad debt or not getting paid either on a domestic or international level.  Most international sales are on open letters of credit.

Answer 2

The advantage of using a letter of credit from you bank is that the letter of credit stipulates that your supplier will be paid by the bank, if they comply with the terms of the L/C. Usually, to comply with a letter of credit, documentary evidence that proves delivery of a quality product per the agreement needs to be provided.

Now your supplier or the company or person you are purchasing from can go ahead and deliver the item, object or service knowing that he will be paid if he delivers according to the agreement.

As you can see, this protects your supplier, or person you are purchasing from and the letter of credit also protects you, because it ensures that the supplier is paid only if he complies with the agreement. Although letters of credit come in a number of flavors, in general they tend to guarantee payment by the issuing bank, which gives suppliers a level of comfort.