The Importer’s bank drafts the Letter of Credit using the Sales Agreement terms and conditions and transmits it to the exporter’s bank.Once the Sales Agreement is completed, the importer applies to their bank to open a Letter of Credit in favor of the exporter. The exporter and their bank must be satisfied with the creditworthiness of the importer’s bank.How are disputes resolved between importer and exporter?.How much does a Letter of Credit cost? Who pays the fees?.What type and size of export transactions are suitable for a Letter of Credit?.To avoid payment delays and extra fees, documents required by the Letter of Credit should be prepared by trained professionals.Īdditionally, the exporter should consult with their bank before the importer applies for the Letter of Credit. The required documents are detailed and prone to errors and discrepancies. They are recommended for use in higher-risk situations, when the importer’s credit is unacceptable or not available, when dealing with a new or less-established trade relationship or when extended payment terms are requested. Letters of Credit are one of the most secure payment instruments available but can be labor-intensive and relatively expensive due to bank fees. This means the exporter gets a guarantee of payment while offering the importer reasonable payment terms. They can help you win business with new clients in foreign markets. What is a Letter of Credit?Ī Letter of Credit is a contractual commitment by the foreign buyer’s bank to pay once the exporter ships the goods and presents the required documentation to the exporter’s bank as proof.Īs a trade finance tool, Letters of Credit are designed to protect both exporters and importers. If you are unable to find reliable credit information, one trade finance tool available to the exporter is the Letter of Credit. However, to offer this sought-after benefit, you must check the foreign buyer’s credit which is not always easy to find. When possible, offering extended payment terms can be extremely attractive to new foreign buyers and may ultimately lead to winning more export sales. Economic Development Organizations (EDO).Foreign Direct Investment Attraction Events.Facing a Foreign Trade AD/CVD or Safeguard Investigation?.
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