What is an Export Letter of Credit?
In international
trade, exporters face many problems but among them, the greatest problem is the
security of payment in advance for shipping their goods. But at present in the
business world the, competition is very high and often importers demand that
the exporters ship their goods and after that, he will make the payment. Here
the export letter of credit is very important as it provides exporters with the
confidence to allow them to ship their goods in advance of the receipt of
payment. An export letter of credit is a legal payment of guarantee provided by
the Importer’s bank to the Exporter. The Exporter normally receives the payment
guarantee prior to the shipment of goods. The payment guarantee is conditional
upon the Exporter providing documentary evidence of the shipment of goods in
accordance with the terms of the LC.
Export letter of
credit may be confirmed (i.e. the credit risk of the Importer’s bank can be
underwritten by the Exporter’s own bank), and in this way, export letter of
credit eliminates the Exporter’s risk of non-payment resulting from default by
the Buyer, their bank or a country risk event. This would require credit
approval for the Exporter’s bank.
How does the Export
Letter of Credit work?
Export letter of
credit provides a guarantee of payment to the exporter on the behalf of
importer's bank either immediately upon receipt of the correct documents or at a
near-future determinable date e.g. 60 days from sight (by the bank) of the
shipping documents or 90 days from Bill of Lading date. Export letter of
credits is issued subject to the Uniform Customs and Practice for Documentary
Credits issued by the International Chamber of Commerce.
Tips for Exporters For Letters of Credit
- Before an importer applies for an export letter of credit, the exporters must consult with their bank.
- Exporters always need to consider, whether an export letter of credit is necessary.
- Both exporter and importer must be agreed upon certain terms and conditions mentioned on the export letter of credit.
- Exporters must ensure that all documents are consistent with the requirements of the Letter of Credit
- Exporters must be very careful in watching for discrepancies that may delay or prevent payment
Export Letters of Credit Key Features
- An export letter of credit is also known as a documentary credit, is a legal agreement on the part of the issuing bank promise to pay the exporter on behalf of an importer in conditions specified in the export Letter of Credit.
- The issuing bank will typically use intermediary banks to complete the transaction and make payment to the exporter.
- The export letter of credit is a different contract from the contract for the transaction on which it is based. And the bank have no concerned about the quality of the product or service. Bank does not look after if either party fulfills the terms of the sales contract.
- The issuing bank’s obligation to pay is solely conditioned on the seller’s compliance with the terms and conditions specified in the Letter of Credit.
- an export letter of credit, banks are only concerned with documents, not goods.
If you looking for a
professional export letter of credit facilitator then Merchant Credit andGuarantee Corporation will be your best option. Merchant Credit and Guarantee
Corporation will work with you closely and assist you regarding an export letter of credit. Merchant Credit and Guarantee Corporation is a world leader
in an international trade transaction, we will work with both exporter and
importer and for that, both will get service very quickly and easily. For more
details follow the link https://merchantcreditcorp.co/ or call us at +64 9 5244269 or message us at
info@merchantcreditcorp.co
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