LETTERS OF CREDIT
Availability of credit can mean the difference between securing business or letting opportunity pass you by
Letters of credit represent a reasonable compromise that protects both sides’ interests by assuring exporters that they will get paid once they produce and ship the goods according to certain documentary requirements that in turn protect importers’ interests. As mentioned in our introduction, they are one of the oldest and most standard forms of payment for transactions in international trade.
When to use
You have an existing business or store
You are entering into a new relationship with a supplier.
You have not received an order of this type prior other than seen through sample or showroom
WHAT WE OFFER
Commercial (also known as documentary)
Foreign exporters that deal with unfamiliar companies thousands of miles away are naturally uncomfortable investing money to produce goods and ship them without any assurance of payment. Likewise, importers dealing with foreign suppliers don’t want to pay upfront for goods that may not correspond to purchase order specifications or may arrive late, if ever.
Naturally, buyers would prefer to postpone payment until they receive the goods as expected. Letters of credit can prevent buyers from losing deposits when the sellers’ performance is deficient in any way. Without the letter of credit, buyers are left to fend for themselves to recover their deposits if goods are not produced according to spec.
Standby letters of credit are often used to provide security for an obligation, such as a lease or other long-term contract. Landlords may require a deposit or a standby letter of credit that guarantees payment from the issuing bank if a tenant falls in arrears.
Often, large contracts may require at least one of the parties to have a standby letter of credit in place for the transaction to move forward. Basically, a standby letter of credit guarantees the beneficiary that it will be paid from a creditworthy bank if it’s unable to get paid by its counterparty in a transaction.
We provide standby letters of credit, allowing transactions to happen that otherwise might be considered too risky by the receiving entity.
For the Buyer / Purchasing Company
You don’t have to leave deposits with your suppliers, since your letter of credit will be opened for the full amount of the transaction—so your cash is not tied up or at risk while your supplier can often borrow against a letter of credit.
You can build safeguards into the letter of credit, including inspection of the goods and quality control, and set production and delivery times. This gives you more quality control over your goods.
Letters of credit transfer the risk from the buyer to the issuing bank. When securing or negotiating with suppliers, not having access to letters of credit leaves you as a "small fry" and disadvantaged against competitors who do.
For the Seller (known as the beneficiary)
The credit risk is transferred from the buyer to the issuing bank, which is obligated to pay even if the buyer goes bankrupt.
Payment is assured as long as you comply with the terms and conditions of the letter of credit.
Collection time is minimized, as the letter of credit accelerates payment of receivables, and foreign exchange risk is eliminated when it is issued in the currency of the seller's country.
You have easier access to financing and are able to transfer all or part of the letter of credit to another party, e.g., to purchase raw materials.