Why is letter of credit an important way of international settlement?

First of all, let's talk about various payment methods \x0d\ international trade payment is less settled in cash, and the payment tools are generally three orders, and the payment methods are basically remittance, collection, letter of credit and international factoring. \x0d\ Why is a letter of credit an important payment method? Because letter of credit is bank credit and international trade is not used for domestic trade, it is sometimes difficult to accurately understand the credit degree or financial situation of foreign companies or enterprises. Credit does guarantee that the buyer can receive the goods and the seller can receive the payment. If the buyer wants to get the documents, you must pay the bank. Colleagues, if the seller wants to receive the money, he must give all the documents that meet the contract to the bank. Without a bank, he won't pay, which will protect both sides. \x0d\ also uses other payment methods. After long-term cooperation, the two sides have a better understanding of each other's reputation. In order to maintain the long-term cooperative relationship between customers, some companies will change the payment method of letter of credit to collection. Of course, the handling fee of collection will be much lower than that of letter of credit, but collection also has many disadvantages. Collection is commercial credit, which can be divided into D/A and D/P, especially D/A is the most unfavorable to the seller. D/A is D/A, which means that once the buyer accepts, the bank will immediately hand over the documents to the buyer. At this time, the buyer only promised to pay, but did not pay. It's hard to say when the buyer gets the goods, and then he runs away or goes bankrupt. In this case, the basic payment can't be collected-therefore, the general sellers are reluctant to adopt the method of collection. Risk \x0d\ As you said, the importer does not open the L/C according to the contract, and this problem does exist. However, in the process of opening the L/C, there is a step called certificate examination, and the seller examines the L/C according to the contents of the contract (basically, it is very important for people familiar with the business or senior management to check it word by word). If there are mistakes, they agree to pick them out and ask the buyer to change the letter of credit. If the discrepancy is not found due to carelessness, it is the seller's responsibility.