Tips for Exporters

-Communicate with your customers in detail before they apply for letters of credit.
-Consider whether a confirmed letter of credit is needed.
-Ask for a copy of the application to be fax to you, so you can check for terms or conditions that may cause you problems in compliance.
-Upon first advice of the letter of credit, check that all its terms and conditions can be complied with within the prescribed time limits.
-Many presentations of documents run into problems with time-limits. You must be aware of at least three time constraints - the expiration date of the credit, the latest shipping date and the maximum time allowed between dispatch and presentation.
-If the letter of credit calls for documents supplied by third parties, make reasonable allowance for the time this may take to complete.
-After dispatch of the goods, check all the documents both against the terms of the credit and against each other for internal consistency.

Summary

The use of the letters of credit as a tool to reduce risk has grown substantially over the past decade. Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for the purpose of facilitating trade.

The credit professional should be familiar with two types of letters of credit: commercial and standby. Commercial letters of credit are used primarily to facilitate foreign trade. The commercial letter of credit is the primary payment mechanism for a transaction.

The standby letter of credit serves a different function. The standby letter of credit serves as a secondary payment mechanism. The bank will issue the credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract.

Upon receipt of the letter of credit, the credit professional should review all items carefully to insure that what is expected of the seller is fully understood and that he can comply with all the terms and conditions. When compliance is in question, the buyer should be requested to amend the credit.

MNIDA