Logistique et Transport International

A Typical Letter of Credit Transaction Here is what typically happens when payment is made by an irrevocable letter of credit confirmed by a local bank: •After the exporter and customer agree on the terms of a sale, the customer arranges for its bank to open a letter of credit. (Delays may be encountered if, for example, the buyer has insufficient funds.) •The buyer's bank prepares an irrevocable letter of credit, including all instructions to the seller concerning the shipment. •The buyer's bank sends the irrevocable letter of credit to a local bank, requesting confirmation. The exporter may request that a particular bank be the confirming bank, or the foreign bank selects one of its local correspondent banks. •The local bank prepares a letter of confirmation to forward to the exporter along with the irrevocable letter of credit. •The exporter reviews carefully all conditions in the letter of credit. The exporter's freight forwarder should be contacted to make sure t...

There are several basic methods of receiving payment for products sold abroad. As with domestic sales, a major factor that determines the method of payment is the amount of trust in the buyer's ability and willingness to pay. For sales within our country, if the buyer has good credit, sales are usually made on open account; if not, cash in advance is required. For export sales, these same methods may be used; however, other methods are also often used in international trade. Ranked in order from most secure for the exporter to least secure, the basic methods of payment are: •cash in advance, •letter of credit, •documentary collection or draft, •open account, and •other payment mechanisms, such as consignment sales Since getting paid in full and on time is of utmost concern to exporters, risk is a major consideration. Many factors make exporting riskier than domestic sales. However, there are also several methods of reducing risks. One of the most important factors in reducin...