At times, you may need a bit of extra money for something. A Letter of Credit is normally used when buying and selling with different organizations overseas. In some cases these are used domestically as well. Banks are usually the ones that will issue this letter to sellers promising that the buyer will pay as long as all agreements made between them are kept.
The first step for any transaction to take place is for the buyer and seller to make a deal. They will both need to agree on a price as well and quantity and how these goods will be transported. It is normally the seller that will ask the buyer to use a LOC if domestic.
It is very important that each country is able to export products otherwise each nation will be limited with all goods and services within their own territory. To transport domestically is not much of a difference then doing it internationally except that it will cost a lot more. This is only because borders add extra costs such as tariffs and time costs as well as any that hinder the legal system, culture and language.
Another difference is factors of production. This is the starting point of making a product, the input to the finishing point of a product or output. It is generally referred to as the input-output relationship. There are three factors of production which are land, labor and capital. Land consists of all natural resources. These are all different locations as well as mineral deposits which are important for making different goods. In order to make things simpler sometimes land and capital are combined.
A Foul Bill of Lading is given by the carrier stating that the goods that were received prior to shipping looked damaged and wet and not in good condition. Normally the importers and their banks will not accept these for payment. It is also referred to as an Unclean Bill of Lading.
Once this is issued the bank has now promised that the money will be sent on condition that the buyer has the financial means to pay. Depending on the bank one will then need to deposit an agreed amount or the bank might have offered to give a loan. Once all these details have been finalized the letter is then sent to the seller's bank to be looked over. It is in the seller's best interest to then go over it making sure that it is what was agreed upon.
For the amount to be paid out there are requirements that need to be met first. Some of them will include having the goods inspected before transported and which ports will be used, this should already have been noted in the letter. What kind of method will be used to get the goods to the buyer and are all the documents on hand.
If by some chance the ship carrying the goods never makes it to port, the seller will still get the money as the bank has now made a promise to them that payment will be made no matter what. The Credit Letter is a binding document that no one should try and bypass. It is there for the buyer as well as the seller for their peace of mind.
The first step for any transaction to take place is for the buyer and seller to make a deal. They will both need to agree on a price as well and quantity and how these goods will be transported. It is normally the seller that will ask the buyer to use a LOC if domestic.
It is very important that each country is able to export products otherwise each nation will be limited with all goods and services within their own territory. To transport domestically is not much of a difference then doing it internationally except that it will cost a lot more. This is only because borders add extra costs such as tariffs and time costs as well as any that hinder the legal system, culture and language.
Another difference is factors of production. This is the starting point of making a product, the input to the finishing point of a product or output. It is generally referred to as the input-output relationship. There are three factors of production which are land, labor and capital. Land consists of all natural resources. These are all different locations as well as mineral deposits which are important for making different goods. In order to make things simpler sometimes land and capital are combined.
A Foul Bill of Lading is given by the carrier stating that the goods that were received prior to shipping looked damaged and wet and not in good condition. Normally the importers and their banks will not accept these for payment. It is also referred to as an Unclean Bill of Lading.
Once this is issued the bank has now promised that the money will be sent on condition that the buyer has the financial means to pay. Depending on the bank one will then need to deposit an agreed amount or the bank might have offered to give a loan. Once all these details have been finalized the letter is then sent to the seller's bank to be looked over. It is in the seller's best interest to then go over it making sure that it is what was agreed upon.
For the amount to be paid out there are requirements that need to be met first. Some of them will include having the goods inspected before transported and which ports will be used, this should already have been noted in the letter. What kind of method will be used to get the goods to the buyer and are all the documents on hand.
If by some chance the ship carrying the goods never makes it to port, the seller will still get the money as the bank has now made a promise to them that payment will be made no matter what. The Credit Letter is a binding document that no one should try and bypass. It is there for the buyer as well as the seller for their peace of mind.
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