Difference between bill of exchange and letter of credit?

Answer 1

Bill of exchange is an old fashion method of debt settlement, paper based and is not authenticated. LC is a new method which is based on SWIFT MT700 and is bank to bank authentication of a debt settlement in trade.

LC, by default, is bank to bank sponsorship but Bill of exchange, by default is not a banking instrument. however, bank may be involved in its parties or not.

Bill of exchange , solely cannot be used in trade unless this is accepted by buyer's bank which is called documentary collection. also , along with LC , some banks use Bill of exchange as a supporting and cheaper method of guarantee.

Recently, there is a new version of Bill of exchange, named Billex , offered by Billex trade finance corp in Canada and Singapore, which has an online reporting system and verification possibility to compensate for lack of authenticity of Bill of exchange. some banks are using it and some see it as a thread to their LC business . Billex is cheap and LC is expensive... I guess it will grow very fast in the market.