Obtaining Letters of Credit Without Upfront Fees Is Impossible. It’s a Myth Invented By Broker Jokers.

4 min readMay 29, 2022

Introduction

A Letter of Credit (LC) is a document issued by a bank indicating that the bank will honor payments made on behalf of its customers upon complying with certain conditions. Letters of Credit have three main functions:

They can be used to facilitate an international transaction between two parties, one of which may not trust that the other party will fulfill the terms of the transaction;
They can be used to support a loan or line of credit where collateral may be stressed or insufficient; or
They can be used as a form of collateral in lieu of cash, receivables or inventory.

An LC is issued by the buyer’s bank i.e., Applicant’s Bank and confirmed by one or more banks at the request and for the account of a buyer (applicant). The Applicants Bank undertakes to pay the seller (beneficiary) certain amount within a specified time limit and against stipulated documents as instructed by the applicant/beneficiary irrespective of whether or not the seller/applicant has been paid by buyer/applicant. An LC is an assurance from Bank that payment will be made against stipulated documents as per terms and conditions mentioned in LC within validity period provided all terms and conditions are complied with satisfactorily.

Obtaining Letters of Credit without upfront fees is impossible. It’s a myth invented by broker jokers.

There is no such thing as an LC without upfront fees. It’s a myth invented by broker jokers, who must have realized that if they told you the truth, you would never agree to pay their ridiculous fees. Sometimes, scammers use “no upfront fee” contracts to capture sensitive information in order to commit identity theft. The reality is that it costs money to open an LC, and that cost must be covered somehow. The only way to do this without paying upfront fees is by using a direct channel of communication between your bank and another financial institution — but even then you will still have some sort of fee due to overhead costs associated with communicating with each other directly (in addition to the cost of providing your information).

A Letter of Credit (LC) is a document issued by a bank indicating that the bank will honor payments made on behalf of its customers upon complying with certain conditions.

A Letter of Credit (LC) is a document issued by a bank indicating that the bank will honor payments made on behalf of its customers upon complying with certain conditions. It is also used as an instrument for making payments and collecting monies from banks, as well as providing protection against non-payment or unauthorized payment. In essence, a letter of credit serves as a guarantee that the issuing bank will perform under certain conditions specified in the letter itself.

Letters of Credit have three main functions:

Letters of Credit are used for three main purposes:

To facilitate an international transaction between two parties, one of which may not trust that the other party will fulfill the terms of the transaction;
To support a loan or line of credit where collateral may be stressed or insufficient; or
To guarantee payment to suppliers, contractors and others who provide services on your behalf.

1. They can be used to facilitate an international transaction between two parties, one of which may not trust that the other party will fulfill the terms of the transaction;

A letter of credit (LC) is a form of financial instrument that can be used to facilitate an international transaction between two parties, one of which may not trust that the other party will fulfill the terms of the transaction. LCs can function as payment guarantees, or they can support a loan or line of credit.

An LC may also be used as a form of collateral in lieu of cash, receivables or inventory.

2. They can be used to support a loan or line of credit where collateral may be stressed or insufficient; or

Letters of credit are a form of security.
Letters of credit can be used as collateral.
An LC can be used to support a loan or line of credit where collateral may be stressed or insufficient; or
A letter of credit is often used to support a loan or line of credit, where collateral may be stressed or insufficient.

3. They can be used as a form of collateral in lieu of cash, receivables or inventory.

They can be used as a form of collateral in lieu of cash, receivables or inventory.

An LC is issued by the buyer’s bank i.e., Applicant’s Bank and confirmed by one or more banks at the request and for the account of a buyer (applicant). The Applicants Bank undertakes to pay the seller (beneficiary) certain amount within a specified time limit and against stipulated documents as instructed by the applicant/beneficiary irrespective of whether or not the seller/applicant has been paid by buyer/applicant. An LC is an assurance from Bank that payment will be made against stipulated documents as per terms and conditions mentioned in LC within validity period provided all terms and conditions are complied with satisfactorily.

A letter of credit is an irrevocable and unconditional obligation of the issuing bank to honor the credit. The issuing bank guarantees payment to the beneficiary (seller), and it will honor the letter of credit even if the applicant/buyer does not pay.

The issuing bank will act as a guarantor for both parties: the applicant/buyer and seller, but only after all conditions are met.

Conclusion

The issuance of commercial letters of credit is a financial service provided by many banks and other financial institutions. A bank that issues a letter of credit is known as the issuing bank and the customer who requests the letter of credit is called the applicant. The beneficiary, in most cases, would be the exporter or seller of goods and services.