What is a letter of credit and how it works depending on the transportation type

In international logistics and, in particular, in goods transportation, it is important to take into account the use of letters of credit. This is a document that serves as a means of payment and is issued by a solvent financial institution. A letter of credit is designed to safeguard the interests of both exporters and importers by facilitating secure and efficient transactions.

A letter of credit, sometimes referred to as a documentary credit, is a contractual commitment by the foreign buyer’s bank. The commitment consists in making payment once the exporter has made the relevant arrangements for the goods and has submitted the necessary documentation to the exporter’s bank as evidence.

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The operation and application of the letters vary according to the overall logistical environment and the type of transport moving the goods. When paying with a letter of credit, several parties are involved, such as the payer and the payee, as well as the issuing bank, the notifier, the confirmer, and the nominee.

The International Chamber of Commerce establishes a set of rules, notably the Uniform Customs and Practice for Documentary Credits (UCP), that govern letters of credit. These rules provide a standard framework for the issuance, interpretation, and execution of letters of credit, ensuring uniformity in international trade transactions.

Tipos de cartas credito documentario logistica internacional

Types of letters of credit in international logistics

There are six main types of letters of credit that will help us to receive or make payments abroad, and which can be obtained from a bank.

  • Commercial or import/export
  • Standby
  • Revocable
  • Irrevocable
  • Renewable
  • Red clause or green clause

It is always helpful to have expert advice on importing and exporting products at an international level. At Logisber we specialize in commercial transactions of all kinds and advise companies on all bureaucratic aspects, including letters of credit and the commissions established by each financial entity associated with the operation.

If you would like to use this type of payment in your international transport operations, contact Logisber now and our team will give you step-by-step, personalized advice on how to obtain a letter of credit capable of guaranteeing your payments without delay.