The Operation Mechanism of L/C Payment Risks in International Business

As a payment method, letter of credit is widely used around the world for its equal and high protection for both parties. While, nothing is perfect, for its specialty and its technique, it is easy for foreign trade companies to make some mistakes. Besides, the banks deal with documents but not the goods, therefore the seller has the opportunity to present fraudulent documents; meanwhile some of foreign trade companies lack experiences and knowledge about letter of credit, which may cause the other party or the bank to dishonor the payment. The risks of using L/C also exist, which has greatly threatened the payment collection of foreign trade companies. Under the theory of L/C and according to the appearances of L/C risks, the author classifies the risks into different types and puts forward some measures to evade risks of using L/C.