Letter of Credit in International Trade

Avoid payment

Guarantee delivery of goods

Provide financing

Guarantee payment for exporters

Ensure safety of goods

Importer

Issuing bank

Exporter

Correspondent bank

Commercial bank

Exporter

Importer

Issuing bank

Correspondent bank

Commercial bank

Beneficiary

Applicant

Issuer

Notary

Commercial bank

Revocable L/C

Irrevocable L/C

Transferable L/C

Revolving L/C

Beneficiary

Issuing bank

Exporter

Importer

Correspondent bank

Beneficiary

Buyer receives goods

Goods are shipped correctly

Required documents are submitted according to L/C terms

Importer pays directly to exporter

Provide financing

Debit Inventory, Credit Cash

Debit Cash, Credit L/C

Debit L/C, Credit Accounts Payable

Debit Receivables, Credit Inventory

Debit Cash, Credit Inventory

Debit Accounts Payable, Credit Cash

Debit Inventory, Credit Cash

Debit Inventory, Credit Accounts Payable

Debit Cash, Credit Accounts Payable

Debit Cash, Credit L/C

Debit Administrative Expenses, Credit L/C

Debit Inventory, Credit Cash

Debit L/C, Credit Accounts Payable

Debit Inventory, Credit L/C

Debit Cash, Credit L/C