
What is a Letter of Credit?
A Letter of Credit is a financial instrument issued by a bank on behalf of the buyer to the seller as a guarantee of payment for the goods or services. The bank acts as an intermediary to guarantee payment to the seller of goods or services. Buyers pay a fee to the bank for issuing the Letter of Credit and they also need to provide margin amount as collateral.
What is a Trade Credit Insurance Policy?
A Trade Credit Insurance Policy is a type of insurance policy that protects the Insured Business from Non—Payment of Invoices by insuring the Accounts Receivables. If the buyer does not make payments owed to the seller, either due to bankruptcy or delays payment beyond a specified period, the Trade Credit Insurance Policy will pay out a percentage of the Invoice Value to the seller.
What is the difference between Letter of Credit and Trade Credit Insurance Policy?
Following table summarises the difference between Letter of Credit and Trade Credit Insurance Policy:
Letter of Credit | Trade Credit Insurance Policy |
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