Export LC is extensively used in Foreign Trade to facilitate the smooth conduct of the export business. Banks play the role of intermediaries to get the transaction through, even though the buyer and the seller may not know about each other’s background.
Export LCs clear the uncertainty between the buyer and the seller with the bank undertaking to settle the obligations in time. Export LC in favor of the customer is received by the bank, which advises the LC to the customer. When the customer ships the goods as per LC terms and submits the relevant documents to the bank, the bills are either purchased or sent for collection to the LC issuing bank.
The amounts drawn against Export LCs are endorsed on the back of the original LC.