letter of credit

Hi,

Letter of Guarantee is an assurance from the banker to the payee to pay to him on behalf of the applicant.

Ex:

Payee - Supplier of Goods

Applicant - Buyer of Goods

Bank assures the seller on behalf of the buyer of the goods/services. It is nothing but a credit assurance to the seller.

So, In case the buyer is unable to pay the amount then the LC issued bank needs to honour the payment.

Hope ths helps

Bank makes the payment on behalf of the buyer...

Bank will then debit the amount from the buyers account..

However, bank take into account of the credit worthiness of the buyer before granting LOC

Youre welcome Vishnu.