Letter of credit - when do you have to pay it back?
So im reading through some boilerplate credit agreement language right now and it basically says that an L/C expires one year after the date of issuance, however another section of the credit agreement says disbursements need to be paid back within one business day. I am kinda confused here, when are the actual payments due? as far as i know i thought it was a year since i see some financial statements that include outstanding letters of credit. not sure what the "one day reimbursement" means...
Each LC has a maturity date, which can continue to be renewed by the bank, but let's say the bank decides not to - the counterparty is probably going to draw on it before it's up. At that point, it could either become an outstanding loan under the RC or just become an amount due to the issuing bank at whatever date/timing specified in the underlying document
LC is a document issued by a bank that guarantees one's payment to another. In case a buyer cannot repay a seller, the bank cones in and covers the amount on behalf of the buyer. This agreement has an expiration date and in case the LC is drawn, the amount has to be paid back to the bank (by the buyer) until a certain date, in your case, the next business day. Not sure how this reflects in one's statements (haven't seen it in practice) but until the LC is actually used, then it's an off-balance sheet item. If used, I guess cash goes down immediately on buyers BS.
seems like youre referring to a standby L/C... what about just a regular L/C?
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