Whar is L/c . And how it's work in international trade finance business

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L/C stands for Letter of Credit. It is a financial document used in international trade to ensure payment between buyer and seller.

L/C is a written commitment from a bank to pay the seller a specified amount of money upon presentation of certain documents.
It is used to reduce the risk of non-payment for the seller and to ensure that the buyer receives the goods as agreed.
L/Cs can be either revocable or irrevocable, and can be confirmed or unconfirmed.
Revocable L/Cs can be changed or cancelled by the buyer without the seller's consent, while irrevocable L/Cs cannot.
Confirmed L/Cs involve a second bank, in addition to the issuing bank, to guarantee payment to the seller.
Unconfirmed L/Cs only involve the issuing bank.
L/Cs are commonly used in international trade for transactions involving large amounts of money or when the buyer and seller are unfamiliar with each other.
Example: A buyer in the US wants to purchase goods from a seller in China. The buyer opens an L/C with their bank, which sends it to the seller's bank in China. The seller ships the goods and presents the required documents to their bank, which then sends them to the buyer's bank. The buyer's bank verifies the documents and releases payment to the seller's bank, which then pays the seller.

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