Product Description

Exporters face the greatest risk in international trade unless they can secure payment in advance of shipping their goods. However, the competitive nature of the world economy often demands that Exporters ship their goods before receiving payment.

Letters of Credit provide Exporters with the confidence to allow them to ship their goods in advance of the receipt of payment. A Letter of Credit is a conditional payment guarantee provided by the Importer's bank to the Exporter. The Exporter normally provides 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 Letter of Credit. The Importer's bank will guarantee the payment to the Exporter either immediately upon receipt of the correct documents or at some future determinable date e.g. 60 days from sight (by the bank) of the shipping documents or 90 days from Bill of Lading date. Letters of Credit are issued subject to the Uniform Customs and Practice for Documentary Credits issued by the International Chamber of Commerce.

Product Benefits

Payment is guaranteed by the Importer's bank prior to shipment.

The conditional nature of the payment guarantee provides the Exporter with control in securing the funds.

Letters of Credit can eliminate an Exporter's risk of non-payment as a result of default by the buyer.

Letters of Credit can be confirmed (i.e. the credit risk of the Importer's bank can be underwritten by the Exporter's own bank), thus eliminating an Exporter's risk of non-payment resulting from default by the buyer, their bank or a country risk event.

Letters of Credit can provide access to post shipment non-recourse financing.

Letters of Credit reduce the need for a credit control function.

Letters of Credit provide certainty in relation to the payment date.

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