If you are unable to find reliable credit information, one trade finance tool available to the exporter is the Letter of Credit. As a trade finance tool, Letters of Credit are designed to protect both exporters and importers. They can help you win business with new clients in foreign markets. This means the exporter gets a guarantee of payment, while offering the importer reasonable payment terms.
Hence, this way, the purchaser will get a refund. When the purchaser receives the payment, the payment will be a penalty incurred by the seller or the beneficiary that did not deliver the consignment of goods on time.
The bank that grants the Letter of Credit has to be a regular banker of the opener and should also be known to the beneficiary. The Overseas Letter of Credit should always be advised through an Indian Bank, preferably it should be confirmed. Have added this point to remind people that this possibility exists so they can keep it in the back of their minds.. Due to Covid, is this the risk to send the hard copy of LC documents to issuing bank at oversea country?
Any other solution? Hi Liew, since COVID affects everyone, all entities are cautious and am sure with discussions there are some arrangements made like electronic transmission etc.. Is it valuable? What are the documents we have to submit the bank for release of payment as job is already completed? Your kind advise will be highly appreciated. Thanks so much for walking us through, on how LC works in such a simple and straight forward style. Letter of Credit not received in our exporter bank, but cargo we sent at Nhava Sheva port.
The goods were shipped on 2 May , and the shipping documents were received on 15 May How does payment term come into picture?
Let us say the payment terms between buyer and supplier are 90 days from the date of bill processing by buyer. In that case , when will the bank pay the seller the money? For LC mode of payment, the payment terms between Buyer and Seller, usually within 7 days, 14 days and 21 days maximum. Good Day tell me how would I protect myself if the seller says he gaurantees goods of the correct qualirty on arrival, can and will he only be paid once I have checked this?
Hello Mark, what is your terms of sale with the seller..?? Have you done business with him before..?? Dear Hariesh, how does the issuing bank protects its interests.
Consider a case, where the buyer doesnt turn up to receive his cargo, possibly due to a sharp fall in the price of commodity. But, based on article above. The bank can always use his power to get the money back no matter what excuses the buyer gave. You aare really producing fantastic articles. Keep up the good work of educating people in this industry of ours.
Once in shipping will remain in shipping. I would like you to comment of an FCA contract if you can. I would be happy if you could also elaborate on procedures or steps to take if i am say, of receiving and despatching a foreign vessel at port. Buyers on the one hand may be afraid of paying up front for goods due to the risk of them not being delivered and the sellers on the other hand may be uncomfortable supplying the goods for fear they may not get paid.
A letter of credit is the most commonly used solution to this issue. Payment is guaranteed to the seller providing documents called for, by the buyer, are presented in order and within the agreed timeframe. Read more about how to manage the risks of exporting. Think carefully about whether or not you need to ask an overseas customer for a letter of credit.
Some important things to consider include:. Give some thought to alternative arrangements, such as credit insurance, export factoring or cash in advance terms.
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