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Financial institutions guarantee Letters of Credit (LCs). One side must guarantee something to another, usually money but sometimes project completion. Cross-border transactions with geopolitical and shipping risks, security registration restrictions, and trust and time concerns often use Letters of Credit. Financial LCs are redeemed for quick payment if certain transaction criteria are completed, such as presenting a bill of lading to show shipping. Documentary (or Standby) LCs guarantee payment but are not expected to be redeemed.
Buyers join with financial institutions to pay suppliers via supply chain financing. The buying business sets up the programme, but these providers must join up. The supplier might seek early payment from the lender, commonly a bank, after the firm buys goods from them. The buyer then agrees to pay the lender on a later date.