LC- Letter of Credit!

[More4u4Less]

Hi, i just wanted to ask is it safe dealing with Letter of Credit with large wholesale orders?

Any advantages and disadvatages?

Thanks for All Help in Advance

[Saajan]

Quotes from WikiPedia:

Imagine that a business called the Acme Electronics from time to time imports computers from a business called Beijing Computers, which banks with the Shanghai Business Bank. Acme holds an account at the Commonwealth Financials. Acme wants to buy $500,000 worth of merchandise from Beijing Computers, who agree to sell the goods and give Acme 60 days to pay for them, on the condition that they are provided with a 90-day LC for the full amount. The steps to get the letter of credit would be as follows:

* Acme goes to The Commonwealth Financials and requests a $500,000 letter of credit, with Beijing Computers as the beneficiary.
* The Commonwealth Financials can issue an LC either on approval of a standard loan underwriting process or by Acme funding it directly with a deposit of $500,000 plus fees between 1% and 8%.
* The Commonwealth Financials sends a copy of the LC to the Shanghai Business Bank, which notifies the Beijing Computers that payment is ready and they can ship the merchandise Acme has ordered with the full assurance of payment to them.
* On presentation of the stipulated documents in the letter of credit and compliance with the terms and conditions of the letter of credit, the Commonwealth Financials transfers the $500,000 to the Shanghai Business Bank, which then credits the account to the Beijing Computers by that amount.
* Note that banks deal only with documents under the letter of credit and not the underlying transaction.
* Many exporters have misunderstood that the payment is guaranteed after receiving the LC. The issuing bank is obligated to pay under the letter of credit only when the stipulated documents are presented and the terms and conditions of the letter of credit have been met accordingly.

Risks in International Trade

* A Credit risk is a risk from a change in the credit of an opposing business.
* An Exchange risk is a risk from a change in the foreign exchange rate.
* A Force majeure risk is 1. a risk in trade incapability caused by a change in a country's policy, and 2. a risk caused by a natural disaster.
* Other risks are mainly risks caused by a difference in law, language or culture. In these cases, the cargo might be found late because of a dispute in import and export dealings.

Since nowadays almost all letters of credit are irrevocable, (i.e. cannot be amended or cancelled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any)

Letter of credit - Wikipedia, the free encyclopedia

[More4u4Less]

THANKS SAAJ! So if i send a LC to someone for £1000, and their bank recieves it, would they straight away give the LC to the person selling or would they have to wait for me to confirm that the products are good? Could they just send me wrong products or scam me and still get the LC?

Thanks

[Supremetronics]

if you read the last quote, i think its hard to cancel. not sure if thats before or after the supplier has recieved the payment though. would be best to contact your bank as they should have best knowledge on the ins and outs of it.

[pete]

The L/C can be written in many ways. As you can see above - "On presentation of the stipulated documents in the letter of credit and compliance with the terms and conditions of the letter of credit"

So the L/C can say "When the goods are picked up by the trucking company."

Or "When the goods are on the dock"

Or "When the goods are on the ship"

Or "When the goods have passed through Customs in the receiving country and have been opened, inspected and accepted by the buyer."

So, as you can see, it's not just the term L/C that means anything, it is exactly how the L/C is written that makes the difference. It is saying "When all of these parameters have been met, the seller will receive their money." It is up to you to see that the terms stipulated in the L/C are protecting your interests.

[More4u4Less]

o rite thats great then becuase i could tell my bank to include "When the goods have passed through Customs in the receiving country and have been opened, inspected and accepted by the buyer." This way he cant get the money if he hasnt followed the terms and conditions

thanks pete

[pete]

That does not mean the seller will accept your terms. You can ask, but the letter must be accepted by both sides.

[More4u4Less]

Yes obviously, if the person does not accept the terms then i would not deal with the seller

[varsha]

Very helpful website here: Letter of Credit

[strongbow]

intresting