The Advantages of Letter of Credit

L/C is abbreviation from Letter of Credit that is issued by a bank based on applicant or importer request to be passed to exporter in abroad as their business relation. The exporter has an authorize to take the money through issue a draft ( a command for paying indebtedness ) to the importer for some amount of money as stated on the L/C. The issuing bank can accepts and can releases the payment as long as all requires as mentioned on the L/C could be followed by exporter or all terms and conditions are complying to the letter of credit.

The advantages of letter of credit :

• International transaction can be more easy.
• Funds that are provided by importer for their order putted in exporter will be safety. This because exporter can not takes the funds if there is discrepancy on the shipping documents presented by exporter even found one discrepancy. For instance, the description of the goods are not same with the L/C required.
• To ensure exporter provides the shipping documents completely. Exporters will give their efforts to provide the shipping document completely and comply to the letter of credit.
• Ensuring on keeping the delivery date in time. If exporter did not shipped out the goods in time, this will leads to discrepancy condition, then the importer may be did not release the payment.
• Ensuring fully quantity of the goods required are filling up. The quantity of the goods usually must be in tollerant range, sometimes importer can allow the quantities that are shipped out in more and less five percents. Exporter has to ship out the goods with the full quantities as the L/C mentioned up.
• To ensure the payment to order that is putted in exporter. Both exporter and importer sometimes don't know well to each others or occasionally they just have a business relation through an buying agent or importer never met with exporter. Of course, it's a big risk for exporter, what if importer did not release the payment while the goods have been received by them? Through this letter of credit buyer has a compulsory to pay or release the payment to exporter for the goods that have been exported as long as exporter has provided the shipping document with no discrepancy founded on the documents. Then bank will release the payment to the account of exporter. So that the L/C should be issued before the production are starting up.

To get the above advantages both exporter and importer have to check the L/C draft before the L/C is issued to avoid any discrepancies come up. Exporter has to check whether the L/C's terms and conditions are comply with rules in their country or not. And exporter has to check all documents format in its practice. If there is a content that is can not be followed by exporter they may ask importer to revise the L/C draft till exporter confidence in providing the shipping documents.