With all the above-mentioned advantages, such contracts

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An irrevocable contract guarantees that the buyer is obliged to pay under the contract if the supplier fulfills its obligations properly. And vice versa, he will easily get his money back if the seller does not deliver the goods within the agreed time.

also have a number of disadvantages:

bank commission - for the mediation service, you will be charged from 0.1% to 0.6% of the contract amount, depending on the terms;
legal nuances - the beneficiary must strictly comply with all points of the contract, otherwise he may be left without money, with warehouses full of goods;
"mountains of paper" - trade operations under a letter of credit are often accompanied by a large volume of documents;
writing off money - with a letter of credit, you can luxembourg whatsapp number forcibly write off money from an account, seize it, or suspend operations. In this regard, a more preferable alternative to settlements is escrow;
formal bank check - the credit institution checks the documents received from the counterparty on formal grounds. In most cases, the bank will not bear any responsibility for failure to detect the forgery.

Fortunately for bankers, most people consider these shortcomings to be insignificant, since at the very least they are not worth the wasted nerve cells and gray hairs on their heads.

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Enlarge image Where a letter of credit is used
A letter of credit can be compared to a safe that will open when the supplier fulfills its obligations
Where a letter of credit is used
The scope of application of letter of credit agreements is extensive.