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L/C - Coggle Diagram
L/C
Advantages
For Buyer (Importer)
Faster Cash Flow
– Payment upon document approval
Market Expansion
– Trade with new buyers securely
Risk Reduction
– Protection from buyer insolvency & political risks
Guaranteed Payment
– Payment secured if terms met
For Seller (Exporter)
Reduces Non-Delivery Risk
– Seller motivated to ship properly
Better Supplier Terms
– Stronger trust = better pricing
Ensures Compliance
– Payment only if terms are met
Financing Support
– L/C-backed loans available
Disadvantages
For Seller (Exporter)
Time-Consuming
– Delays due to bank verification
Complex Documentation
- Risk of rejection if errors occur
Bank Dependency
– Payment depends on bank approval
High Costs
– Bank fees & document processing expenses
For Buyer (Importer)
Financial Burden
– Requires collateral or blocked funds
Risk of Discrepancies
– Errors in documents = delayed payment
High Bank Fees
– Multiple charges add to trade costs
Irrevocable Commitment
– Must pay if seller meets terms