LETTER OF CREDIT

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There are cheaper means of payments than a letter of credit , but this is the safest.

It depends of the whole prise of the goods that are imported/exported

Delayed receipt of the letter of credit may cause problems with the tinme limit for dispach the goods

3d. Disadvantages for seller

There may be extra work involved with the preparation of docs. for letter of credit

Possibility to obtain finance from the confirming bank

Security against amendment or cancellationof an order without the seller consent

Payment will be predictable

Security for obtain payment

The letter of credit cannot be cancelled unless accepted by the seller

The buyer has an obligation to pay for complying documents, regardless of the condition of the goods

3a. Advantages for buyer

3b. Disadvantages for buyer

Increased possibility to obtain discount of financing from seller

The letter of credit improves the cash flow

The buyer is only obliged to pay against of complying docs

Payment is not to be effected until the buyers bank has received the docs;

The seller of goods or services to whom the LC is addressed and who is entitled to its benefits.

1. DEFINITION

An LC is a financial instrument issued, generally by a bank, to an individual or corporation by which the bank substitutes its own creditworthiness for that of the individual or corporation. LCs facilitate importing and exporting by assuring the seller/exporter’s payment for goods sold against compliant documents. Without such assurances of payment, foreign trade would be severely curtailed.

LETTER OF CREDIT

Letter of credit

2.The beneficary in a L/C

3c. Advantages for seller

4. Main documentation of L/C

Health Certificate of phitosanitarycertification

Insurance Certificate ( Proof of Quality)

Inspection Certificate (Proof of quality)

Certificate of Origin (Proof of Origin)

Packing list (Proof of Packing)

Bill of Lading (Proof of Shipment)

Commercial invoice (Proof of Value

5. Price of the Letter of credit

Typical buyer`s fee is 0.75 percent, but notes that in underdevelopedcountries it can range from 1.5 percent upward.