Export Letters of Credit 2017-11-21T14:37:24+00:00

EXPORT LETTERS OF CREDIT

Letters of Credit Used For Export Financing

Bank Guarantees are the perfect method of import financing, providing protection to both importers and exporters in cross-border trade deals. They offer numerous benefits, chief among them is the granting of an absolute guarantee of performance and payment to the exporter, who then no longer bears any payment default risk. With no risk of default, importers are better positioned to negotiate more favorable deal terms.

Export Letters of Credit Overview

Export Letters of Credit are the most common trade finance method used to finance exports. They are versatile, secure and can be used for almost any international trade transaction. Export Letters of Credit are financial instruments issued by banks that represents the commitment of the bank on behalf of an importer that guarantees payment will be made to the beneficiary (exporter) provided the terms and conditions specified in the Letter of Credit have been met. Conditions which specified in Letters of Credit are typically evidenced by the presentation of specified documents. Since they are credit instruments, issuing banks rely on the credit worthiness of importers when issuing Letters of Credit.

The importer pays the issuing bank a fee to render this service. Letters of Credit are useful when there is insufficient credit information about a foreign buyer or the foreign buyer’s credit is unacceptable to the seller/exporter, but the exporter is comfortable with the creditworthiness of the issuing institution. Letters of Credit also serve to protect the importer since the documents required to trigger payment provide evidence that goods have been shipped as agreed. However, documentary discrepancies in Export Letters of Credit could potentially negate payment to the exporter, documents must be prepared by trained professionals.

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