What Is A Letter Of Credit?
What is a Letter of Credit? If you have been involved in the wholesale industry for some time, especially if you import wholesale merchandise, you are likely to have heard of a Letter of Credit (or Letter of Security), which is a document that certifies the financial responsibility of a business or organization. A Letter of Credit may be used for loans, equipment, and inventory, to purchase raw materials, pay employees, and etc. A Business Credit Card would be similar, except it has a specific credit limit that could only be accessed by the credit cardholder. It is usually associated with invoicing and collection activities. An example of this document could be a promissory note, a business checking account, or purchase order, each of which has a set limit on the amount of credit extended.
A Letter Of Credit is completely different from a Business Credit Card. A Business Credit Card is usually associated with a bank, but there are some independent banks that issue business credit cards. An independent business credit card is issued in the name of the business. An example of this document could be an employment agreement, with the employee responsible for monthly payments and purchases with the card. A business credit card is essentially a financial product that extends a loan, at varying interest rates, for a businesses' purchases. A Letter Of Credit signifies that the business can and will pay for a wholesale order upon confirming receipt of the product. An Export Letter Of Credit is commonly used by importers who want the safety of being able to pay upon delivery, and by exporters who want assurances that they will paid for their products.
A Letter of Credit is a written outline of the business's credit policy. The document contains a description of the credit policies of the company, the terms and conditions, and how the credit will be used. The document also includes a description of the credit carrier (i.e., Bank or Credit Company) that will issue the credit, and the terms and conditions related to the issuance of the credit. Wholesalers and retailers can obtain an LOC from banks who specialize in these instruments.
A Letter Of Credit can be obtained from many financial institutions, including,:
Wells Fargo Commercial, HSBC Business Banking, Soleil Chartered Bank, Hab Bank, First Republic, and Citibank.