If you require the letter of credit to be issued as soon as possible. It must be received by the Beneficiary with reasonable notice regarding the shipment of the goods, thus allowing you to evaluate it carefully.
If possible, fix the date or period for shipment or delivery after the receipt of the letter of credit.
The evaluation prior to shipment should be made considering commercial, financial and operational elements.
If the letter of credit does not answer to its fullest, all the conditions agreed in the contract business, you should require amendments.
Only load the goods when you are sure that you can fulfill all terms and conditions of the letter of credit and submit the required documents, as required.
After boarding, you should hand the documents to the bank as soon as possible before the end of its “validity for presentation.” In so doing, there will be time to redo or replace any document purporting to be incorrect.
Remember that the preparation of documents is sole responsibility of the exporting beneficiary. The responsibility for the analysis of those is of the banks.
The banks will review the documents considering the requirements of the Letter of credit and its amendments already accepted, the rules contained in Publication 600 and ISBP 681, the International Chamber of Commerce, under which the letter of credit is being operated and by comparing the documents with each other .
And the banks – each of them – have a period of five banking days to decide whether to accept or refuse the documents received. After this period, which is counted from the day following the receipt of the documents, the banks lose the right to defense.
Make sure the letter of credit is available or usable on your own country. Letter of credit usable outside your own courtly increase the risk and often retard the payment. Give preference to Credit “freely negotiable”. A Credit “restricted” may limit its bargaining power and almost always lead to delays in settlement.
The credit is an instrument that aims to pay its sales, on the moment or with a deadline. It is necessary therefore that its terms and conditions faithfully portray what is on the contract of sale. Therefore, indicate on the invoice , where necessary, all the elements that, in your view, must appear on the letter of credit. If necessary, attach a draft of the credit you want to receive.
The letter of credit is a complex instrument. For that reason requires some special professional care. These are some aspects you should look out for:
Do not just require an irrevocable Credit. You should require the letter of credit to be issued by a solid bank, maybe the bank that handles your RESP or a reliable a first class bank. And that the issue occurs in a country that does not provide risk. The best banks can not honor your credit if there is a moratorium on the issuing country.
Facing the possibility of a letter of credit being issued by a bank that can not be trusted or that the issuing is happening on a risky country, you should require that letter of credit to be confirmed. This means that in addition to a firm commitment of the Bank Issuer, the Beneficiary shall have the firm and added commitment of another bank, the Confirming Bank.
In a letter of credit there is always the question about who pays the costs of confirmation.
Although there is no rule, logic dictates that the beneficiary is who should bear the costs given that he is the one that does not trust the letter of credit.
It is important to note that despite the sovereignty and independence of credit when considered in the light of art. 4 of UCP 600, one can not forget the fact that the genesis of this instrument is in the underlying transaction, a contract of sale of goods, services or other performance.
The terms and conditions of the letter of credit must reflect faithfully what was agreed. This results from the principles enshrined in the law, from the freedom of contract.
Also, under the aegis of the UCP 600, to address the specific issue – costs – ICC – International Chamber of Commerce, states that a bank, using the services of another bank, in order to follow the instructions of the applicant, does it at the risk of the applicant, who should bear the costs of the operation. Even when the letter of credit indicates that the costs or part of them, should be collected from third parties, for example, from the beneficiary and those can not be charged from him, the applicant remains responsible for them.
Furthermore, confirmation should be seen as an accessory to the letter of credit (which in this case is the main banking product).
An exception may occur, however. If the commercial business was closed without requiring a letter of credit confirmation and the confirmation was subsequently requested by the beneficiary, this would be a contract amendment. In this case the beneficiary will have to bear the costs of such confirmation.
It can be confirmed that, unless the exception stated above and unless agreed otherwise and so indicated on the letter of credit, the cost of confirmation shall be assumed by the applicant. After all, is he or his country who have no credit.
Tagged with: letter of credit
What are the types of letter of credit
There are several types of Letter of Credit, check these types:
Revocable Letter of Credit:
This type of letter of credit permits the issuer to modify it, amend it or even cancel it. Most of the suppliers don’t accept these types of letters of credit because it is a higher risk since the buyer can modify it.
Irrevocable Letter of Credit:
In this type of credit of letter it is not permitted amendments, modifications or cancellation. That is only possible if both sides agree on that. This type of letter is a form of a guaranteed payment. Most of the suppliers demand this type of international letter of credit for payment.
Standby Letter of Credit:
This type of letter works as a payment guarantee. It is not a payment method. In case the buyer does not pay, the supplier can use this foreign letter of credit to demand his payment under the terms of agreement.
Transferable Letter of Credit:
This type of letter can be either revocable or irrevocable. With this letter the recipient can transfer part of the benefits of the letter to someone else.
As a business owner you might be asking yourself what is needed to qualify for getting an international letter of credit. It is not always an easy process. You need to first deposit the actual amount of cash you will need to pay to your suppliers on a bank or financial institution that issues this type of foreign letter of credit. This procedure has a high cost.
Another alternative is to have a bank giving you a line of credit. After the bank will issue a foreign letter of credit using the line of credit as collateral. It is the most common method used but is also the hardest because obviously your bank needs to think that your business qualifies for a bank credit.
There is a final third option, in case you couldn’t get your situation solved with the last two options. The name of this trade finance option is purchase order financing. This is the best solution for businesses that have no more financial options with the banks. In this option, the letter of credit is used ti pay your suppliers using your purchase order as collateral. The transition is done once your client pays you.
The costs of letters of credit
If you are thinking about using a letter of credit, be aware that all the charges for its issuance, negotiation of documents, reimbursements and extra charges are requested to the person who applies for it or as per the terms and conditions of the letter. If the letter of credit does not mention anything about who will be in charge of paying its costs, those will be responsibility of the applicant. If you want to know where to mention the description of the charges, those have to be written on the field 71B in the international Letter of Credit.
What are foreign letters of credit?
If you are doing business abroad you might already know or have used an international letter of credit. It is a very useful tool when you need to buy from supplies a large amount of products. This document you can request from your bank in order to guarantee that the payment of the products you have orders will be made. The seller this way will be sure that he will get the payment of the goods he has sent.
The procedures are the following:
The seller has to give to the bank the necessary shipping documents conforming that he has shipped the products during a certain time (usually a few days).
To reduce the risks of shipping to a different country, it is better to use international trade. Sometimes international customs and political instability can make the whole procedure complicated if you don’t use a an international trade method.
The seller when receives a foreign letter of credit will have a promise that the buyer will pay him. In international trade the bank acts has an uninterested party between the buyer and seller. This letter of credit can be used safely by importers and exporters and reduces any misunderstandings with communication, times zones, cultural differences, etc. Into a letter of credit everything will come up on detail to avoid any mistakes.
There are some terms regarding international letters of credit that you need to know. For example abbreviations of foreign letter of credit can be like L/C, LC and LOC.
The applicant on an international letter of credit is the buying in a transaction and the beneficiary is the seller of the products (the one that will receive the money). The issuing bank will be the bank that will assume the responsibility to pay and an advising bank helps the seller to use the letter of credit. Or you can try an Epayment.
Foreign Letter of credit- The money on it
The money assumes the responsibility of paying to the seller the products bought. The bank only issues the international letter of credit when the buyer of the goods have a good credit with the bank, only if they are sure that the buyer will end up paying his debt. In this case there are two options. Whether the buyer have to deposit the money on the bank enough to cover the foreign letter of credit or start a line of credit with the bank assuming that they will pay it later (down payment or by installments).
If you are a seller receiving an international letter of credit, you must make sure to investigate how serious and trustful is the bank issuing the letter.
Starting the letter of credit
On the terms of a letter a credit the seller only get paid after doing what is agreed between the two parties (buyer and seller). Sometimes it can be on the terms that the seller only gets paid after shipping the products and those are delivered. After that happens the seller receives a documents proving that the delivery was a success. In some letters of credit it can be determined that the sellers responsibility regarding the products is limited. For example, if there is a problem with the ship, if there is a problem and damage on the box containing the products, the seller can not be blame for it.
The only thing banks do after to pay the letter of credit is just check the documents proving that the seller did the actions required on the terms.
What you should be careful about when using the international letters of credit
Although this tool have allowed international businesses to be made easily, there are some things you should be aware:
If you are a seller, you must:
- Check very well all the requirements and terms of the letters before accepting it and all the documents will be required.
- Make sure you can get everything required on the letter (documents, etc).
- Check all the time limits required for everything. Make sure you can accomplish them before accepting it.
- Check how much time it takes the services you will use (shippers, etc). You need to have a clear idea of when you will have the documents that will allow you to be paid.
- Check if you can get the documents to the bank on time.
- All the documents required must match the ones required on the application of the letter of credit.
How to get a letter of credit
Your bank should be able to issue a foreign letter of credit. Go to your bank and ask if they can help you with that. If you have an account on a small bank or credit union it might be harder to get that help.
The bank will then review your business credit to make sure they will want to be a guarantee of payment in case you will not be able to pay to your seller. The seller will the the beneficiary of your letter of credit.
The letter of credit will be working as a guarantee of payment for a certain transaction. If you want a more general one that will guarantee you for a specific timeframe, you will need a standby letter.
Tagged with: foreign letter of credit • international letter of credit • letter of credit • letters of credit
Acceptance credit
An acceptance credit is a type of letter of credit. In this type of letter of credit the payment is made by a time draft authorized payment, This happens on a specific date.
If the acceptance credit is unconfirmed, it means that the seller takes the risk that payment might not be made if something happens to the products like shipment nondelivery, confiscation by customs authorities or any other adversity.
If the acceptance credit is confirmed, the bank that issued the credit guarantees the payment to the seller if all the terms of the letter of credit were followed. This type of payment has much higher costs compared to the unconfirmed. This type of payment ends up giving all the risk of non-delivery of the products to the buyer. If for some reason the shipment does not arrive or any other situation, the buyer can not prohibit the payment to be done. As soon the seller ships the products it is following the terms of the letter and needs to be paid.
Accept Payments Online on your Business
If you own a website for your business you can give the option to your clients pay you using the website. It is extremely important that your website accepts online payment. Not having that facility can make your costumers go straight to your competitors. Internet is a very competitive wold nowadays and many sellers realized already how important it is to have the possibility to pay using credit card payments online on their own website.
How to accept credit card payments online
There are several option services that allow you to accept credit card payments online for your business. Choose the one that fits better your business.
If you search online for companies that will provide for you this service, you will find several doing it. Several offer a complete range of merchant services and processing options, at very good rates.
On some providers the process is very quick and you can start accepting payments online after one day of your register.
Most of the providers accept online payments made through Visa, MasterCard and Discover Network credit cards and some even Visa and MasterCard debit cards.
Your merchant account provider will implement a credit acceptance payment options on your website. This functionality will allow you to instantly know weather each transaction is valid or not. Having this functionality on your website will for sure increase your sales. The transfer for your business bank account can happen in just a couple of days. You can even track every purchase. It will allow your customers to buy your products with a quick and safe payment method.
Using credit card payments offline
If you own a shop or a office business and want to accept credit card payments there, you can choose to have a wired terminal. This way you can manually enter or swipe a credit card. If you add a pin pad you can even accept debit card payments. You can also use a wireless terminal that has a built-in printer to not be limited to a fixed payment place.
E payment – Accepting money online
Choosing the option of having a merchant account to be able to accept payments online can seem a scary idea, since they can be expensive and difficult to get charging a lot on fees for transactions.
If you want to find alternatives to merchant account to establish your online shop, you can consider other options. Here is a list of third party providers that will allow you to sell your products online and accept credit card payments.
There is PayPal, that we referred on the previous post. It is the most popular and well known online e payment service. It is the method used on websites like Ebay and most people trust on that provided. The service allows you to send and accept epayment for what you buy. It is very easy and doesn’t require a lot to be able to create an account. The fees are from 1.9% to 2.9% and 30 cents per transaction. Fees are as low as 1.9% – 2.9% and .30 per transaction.
There is other service called BidPay. There is used for the ones that sell and buy their products using online auctions. The way is works is this: when an auction ends, the winners go to Bidpay.com and insert all the information regarding the auction and e payment. E payment is then transferred to the seller using Wester Union money order. If the seller is located in the United States, the e payment can be done directly to his bank account.
Another service for e payment is CCNow. This services gives you a system to pay using a shopping cart that allows you to accept all credit cards. It is not necessary to have a merchant account to register for this service. The epayments from your products you will receive twice a month. The interesting thing is that you earn 1.5% APR while the money stays on the service account.
Digibuy is another option for epayment. It is a software that allows you to add your products for sale. You can control the prices of your products, delivery and order forms. You will receive the money of your sales on a monthly base. You will have to pay 13,9% per transaction fee and there is a minimum of 3$. It allows you to accept all common credit cards.
The service ProPay allows you to accept credit cards online and on any touch-tone phone. If you have a mobile business this might be
the perfect system for you. If you own a business that does sell products on trade shows, fairs, garage sales, etc this might be the best option for you. There are several types of accounts available for you according with the volume of sales you are expecting to make. You have to pay a minimum annual fee of almost 35$ and the maximum almost 300$. Processing fees range from 3.50 + $0.35 to 2.69% + $.0.25. Read carefully all the details of each account and choose the best for your business needs.
Another option is Moneybookers. This service allows you to send and receive epayment online. You also only need an email account to register. It is a very cost-effectively service. Like with Paypal, the money you send and receive is in real-time and the money can be transferred instantly to your bank account.
You can send and collect epayment via email from your credit card or bank account. Fees charged range from 2% to 8% depending on how epayments happens. There is no set up or monthly fees. Epayment can be done and accepted from over 30 countries
Finally, there is 2CheckOut. In this service you have to pay $49 to sign up for an account. The service charges $0.45 for each sale and take 5.5% of the sales total. All you need to do is install the free shopping cart that comes with the service on your website. It works with all credit cards and the big plus is that also accepts checks and debit card e payment.
We gave you here several options of epayment for your business. Research each one of these options and choose the best that fits your business needs and most importantly, your costumers.
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