Studies Of Documentary Credit Financing Function Innovation

Letter of Credit(L/C)is an important payment mode for international trade.It has greatly stimulated the development of transnational transactions.As time goes on,L/C is no longer only a payment method or international settlement means,but also serves as a financing tool.L/C financing has become the most widely used financing product in international trade,which can finance both the seller and buyer at the same time while securing the payment by virtue of the bank's reputation.L/C solved the problem of not trusting each other between seller and buyer,and it has subtly turned the trading relationship into a three party credit agreement between the seller,the buyer and the bank.Along with the diversification and complexity of trading terms and items,we have seen various ways of using L/C.In commercial banks,there are many different financing products based on particular transaction requirements,such as Forfeiting,L/C packing loan,Inward bill purchased,and Delivery against Bank Guarantee.But,can companies finance themselves by just transforming the usage of the letter of credit itself?This paper is focusing on the import financing approaches from different L/C using methods.Firstly,it will make introductions about L/C categories,financing principle and traditional financing methods.And,combined with cotton yarn importing business,it summarizes three new import financing methods.Secondly,it will make comparisons between new L/C financing and bank loans to analyze the LC financing cost and explain why some companies prefer L/C financing instead of bank loans.Thirdly,the potential risks of using L/C to finance will be presented briefly,illustrated by some cotton yarn deals.Then comes the opinions of matters which need company's attention while using the LC to finance,together with the bank's orientation and suggestions for supervising the L/C financing deals.And,lastly is the conclusion and shortage of the context.