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The Process Of A Letter Of Credit
The letter of credit and the sales contract are commercial documents that bind the exporters and importers at the time of an international transaction. Specific information on payment processes should be stated in them.
Pay special attention to the writing of payment clauses. They are important for letters of credit because of the following reasons:
Payment clauses are what determines when, how much and how the exporter will be paid. When writing them in the letter of credit, the importer should draft them with a bank representative.
Payment clauses should be compared with what the letter of credit establishes. Banks will look at what the importer and exporter agreed upon at the time of payment.
If you are an exporter, it is essential to request a sample letter of credit that complies with the terms of your contract with the importer. Indeed, the commitment of the bank is defined solely by the terms of the letter of credit. Even if the exporter did not agree with them, he or she could not refuse to contradict what was written in the contract. Letters of credit can generally be modified but only with the consent of the parts involved. Documentary credit is a legal commitment different from the commercial contract that binds the beneficiary (exporter) to the bank and to its customers.
It is recommended for buyers to obtain samples of pre printed letters of credit that already contain SWIFT encoding. Banks can generally provide them. In most cases, the importers define what needs to happen in order to open a letter of credit and they send that information to the issuing banks by email or mail.
It is the issuing bank which in cooperation and by request of the importer opens the letter of credit. The exporter will receive payment for the merchandise if the transactions were done as the letter of credit established it.
When the exporters are approved credit, they proceed to the shipment of the merchandise. Once it arrives to the port, the letter of credit is given to the issuing bank. The latter will also bring information regarding the shipment it has brought and show how it complies with the letter of credit.
After examining the documents, the bank should normally proceed to paying the exporter for the merchandise, when the transaction details match what was expected in the letter of credit. The bank will then send the importer all documentation provided by the exporter.
About the Author Wade Henderson - recognized Professional - 15 yrs in the Business Finance Field - strong reputation for getting the deal done. IMMFinancial.com Letter of Bank Export Documents
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