Straight Credit

Straight credit is a form of a letter of credit. Banks may just pay straight credit at their counters straightforwardly, or a named drawee bank might make the payment in the event that it has the authorization to do as such.

A bank may just make payment to the beneficiary named in the letter of credit (not to an intermediary or arranging bank). The beneficiary named in a straight credit must present records at the paying bank or named drawee bank at the very latest the expiration date. The term "straight credit" mirrors that payment is made straight or straightforwardly to the beneficiary.

Breaking Down Straight Credit

Straight credit contrasts from negotiable credit in that it confines payment to the beneficiary as it were.

The paying bank in a straight credit is frequently — yet not consistently — likewise the bank that issued the letter of credit. As the buyer's bank, the paying/giving bank guarantees payment to the seller under the letter of credit. This follows the seller's introducing reports that demonstrate goods have been transported or services supplied as per a contract. The letter of credit in this way substitutes the buyer's credit worthiness with that of the bank.

Straight Credit and Other Types of Letters of Credit

The straight credit process works similar as that for a standard letter of credit. In the two cases the buyer and seller consent to execute business, yet to guarantee payment, the seller might require a letter of credit. The buyer applies to their bank for a letter of credit, naming the seller as the beneficiary. When the bank checks the buyer's credit standing, the institution will issue a letter of credit and communicate it to a correspondent bank situated in the seller's jurisdiction. The transmission will ask the bank to prompt or affirm the credit. The correspondent bank advances the letter of credit to the seller (and affirms it assuming the responsible bank has asked it to do as such).

The seller then delivers the goods as per the contract terms and prepares the delivery records precisely as the letter of credit states. Since this is a straight credit, the seller presents the transportation records to the paying bank or one more bank that has authorization to make the payment. The paying bank will check the reports to determine whether they are as per the terms of the letter of credit, and in the event that they are, will pay the beneficiary (seller).

The paying bank then communicates the records to the responsible bank mentioning reimbursement. The responsible bank analyzes the reports for full compliance with the credit terms, debits the buyer's account and repays the paying bank. It then advances the transportation records to the buyer, who utilizes them to receive the goods, consequently finishing the trade transaction.