Letter of credit is a financial security tool that protects you from fraud and deception.

A lot is lost and exposed to fraud, especially when ordering goods from inside or outside the Kingdom, but there is a simple, easy and approved method that guarantees your right. I will talk about it today, which is the documentary credit

This method is approved and supported by all banks.. The party that does not accept it, stay away from it from now on

A means of financial means used in banks, and is known as a paper issued by the bank based on the customer's request, in which he pledges to pay an amount of money to another person within a specific period of time, in exchange for obtaining a service or commodity, and the bank is committed to paying in cash, or accepting bank papers, such as: bills of exchange, or checks

One of the most famous documents in the field of commercial exchanges that depend on import and export, and it can also be used to provide cash and payment within the country, as it is considered a guarantee tool, but this depends on your financial relationship with the bank

Its benefits to the supplier (seller): The documentary credit is a guarantee for him until he obtains from the bank the amount due on the goods he sold, when he submits the documents to send them to the buyer

For the importer (Buyer): It is a guarantee for him to receive the goods; the bank will not pay the price of the goods to the seller unless the bank receives the documents of receipt from the buyer

There are many different types and we advise you to contact your bank's corporate or business department and they will inform you, but here are some of the most famous types

Documentary credit upon inspection: It is the most common type of documentary credits that stipulates payment to the beneficiary immediately upon submission of the stipulated documents

Documentary credit deferred payment: The seller receives payment at a later date after submitting the stipulated documents. The buyer gains possession of the documents (and therefore the goods and services), before the amount is debited to his account

Advance Letter of Credit: The seller can obtain an advance payment of an agreed amount to finance the manufacture or purchase of goods to be shipped under the letter of credit

Revolving Letter of Credit: The seller obtains payment in fixed installments for the goods sent for specified periods

Secure Letter of Credit: The purpose of a letter of credit is the same as a letter of guarantee, and the beneficiary obtains payment upon submitting a simple request

Don't worry about understanding the types, your finance department should have the experience or your bank will also help you with that