LC Full Form is a Letter of Credit. A letter of credit (LC) is a legal document that a bank issues to a seller as payment assurance for goods or services rendered. The LC represents the bank’s promise to compensate the seller even in the event that the buyer doesn’t fulfil their end of the bargain. This helps safeguard the buyer from fraud and provides the seller with the certainty that they will be paid.
LCs are frequently used in international trade where there is a danger of non-payment and the buyer and seller may not be well acquainted. The LC offers a means of reducing this danger and guaranteeing the safety of both parties.
Features of Letter of Credit
The following are the characteristics of the letter of credit:
- The LC is negotiable, though, if it is given as an unconditional promise to pay the amount upon demand at a particular time. Because it can be easily transferred from one party to another, the LC is regarded as being a straightforward instrument that is amenable to negotiation and can be used as money.
- Letters of credit can either be revocable or irrevocable. Most often, irrevocable LCs are used since they cannot be modified without the consent of all parties. However, if a bank provides a revocable LC, that bank has the power to cancel that LC at any moment.
Importance of Letters of Credit
Letters of credit are a dependable payment method since international trading involves complicated issues like distance, disparate legal systems, and the absence of personal interaction. Letters of credit are governed by the “International Chamber of Commerce Uniform Customs and Practise for Documentary Credits.”
Parties involved in a Letter of Credit
- The importer, who is the applicant, asks the bank to issue the LC.
- (Exporter) Benefit
- The bank that issues the LC (sometimes referred to as the opening banker of the LC) is the issuing bank.
Type of Letter of Credit
The following list includes the various letter of credit types:
- Revocable LCs – The issuing bank may change or revoke this form of LC without the beneficiary’s consent.
- Transferable LC – This kind of LC can be used as money and may be transferred by the seller to other parties.
- Irrevocable LC – Without the beneficiary’s previous consent, this sort of LC cannot be changed or cancelled.
This was all about the LC Full form. Visit the General Knowledge page to discover more intriguing articles about full forms. Get in touch with the experts at Leverage Edu in order to kickstart your study abroad journey!