Replaying to the demand of our reader today we will guide new exporter how to work with LC in export.
Our reader asked for our support as he is exporting for the first time his products by the use of credit letter payment. He asked us what would be a safe route for him and his buyer. When he can get payments from the bank periodically or after a certain time?
Letter of credit is the best way of payment to secure the deal between seller and bayer.LC is a common term used in all trade.
When talking of LC, there may have many questions among traders.
What is Letter of Credit?
How does Letter of Credit work?
How many types of LC are there?
How do these types of Letter of Credit work?
Which type of Letter of credit is safe for Exporter?
Which type of LC is safe for Importer?
How to provide credit period to buyer under Letter of Credit?
Can we get my products immediately up on shipping goods under Letter of Credit?
This entire question will be detailed in other post but today let’s see how can we help our reader and replay to his question:
First of all credit letter is regulated under rules of the International Chamber of Commerce (UCP 600).
LC opened on seller name (company) as beneficiary, seller company will receive amount through buyer’s bank (opening bank) controlled by the agreed terms and time. There is various type of credit letter like Revocable, Irrevocable, Confirmed, Unconfirmed, Clean & Documentary, Fixed, Revolving, Transferable, Back to Back etc……
Seller must fix with his bank wish credit letter can be accepted and from wish banks ,near this in the LC verbiage he must fix all terms and document concerning the goods delivery time and period. Credit letter text or verbiage must be agreed between seller, buyer, seller bank and buyer bank (in some deals you will need confirming and/or Correspondent bank)
click to download LC verbiage in pdf:LC verbiage
Sow from our side we can say that working with LCs for export is safe ,just seller must consult with his bank wish terms and condition must agree and fix with his buyer this at first. second we note that seller can get payment in advance or partially/periodically all this depend on how seller will deliver goods to buyer (partially, batches by period……)
To get payment this mean that you accomplish the agreement between you and your buyer or part of the agreement if you have more than one delivery of products .all this must be fixed in the sale and purchase agreement and in the LC text (verbiage).
Seller and buyer cannot make change by himself to an LC ,they should consult with their banks trade department. also take a look at this post. (Click to read)
How to open an LC and what would be the margin needed?
TRANSFERABLE LETTERS OF CREDIT and TRUCKS
How Partial Shipment can work in favor of seller and buyer?
We hope by this we helped our ready to have some clear view about the LC use in trade.
Resuming all this, seller can add clauses or terms suitable to him, but only by informing (writing) his buyer, who in turn will ask his bank (banks trade department) to add them to the LC – if they agree.
Seller must make sure that the LC is issued by an acceptable bank and see with his bank if will be a need to use confirming and/or Correspondent bank.
For further protection seller and buyer must fix this in the LC text (verbiage)
“All discrepancies in the documents will be acceptable except description of goods, unit price, quantity, latest shipment date and validity of LC”.
Finally big thanks to our readers, we hope to see their comments and questions about this or any other point in trade.