Letter Of Credit

Getting the banks to help you do business

A Letter of Credit is a binding document that a buyer can request from their bank in order to guarantee that the payment for goods will be tranferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods.

In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the delivery of goods within a given time frame.

It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability.

A Letter of Credit (LC) or Documentary Letter of Credit (DLC) is issued by a bank, guaranteeing payment to the supplier on certain pre determined specified conditions being met.

LCs should be used only where credit on normal commercial terms cannot be obtained. It is also preferable to use LCs when suppliers overseas request pre payments

Generally LCs are used when the supplier demands payment before starting work on a product or commodity.

Together with LCs the issuer of the LC will require insurance to cover the goods in transit. This insurance cover in general could be 110% of the value of the goods purchased.

One of the major requirements that banks and lending institutions seek for this form of funding are confirmed fixed orders from clients who can guarantee payment.

Signing the contract
Application to open the letter of credit and depositing financial coverage
Opening the letter of credit and transferring the coverage to the confirming bank
Confirmation and advising the letter of credit to the exporter
Shipping
Presenting documents to the exporter's bank
Payment
Transferring documents to the importer's bank
Transferring documents to the importer

Depending on your individual situation, Rent Lease Group will help structure and negotiate the necessary LC either locally or through overseas funding institutions. This particular form of finance would necessitate a meeting to further discuss your particular requirements. Please call Rent Lease Group on 03 9011 9486 (Australia) or click here to have a representative contact you as soon as possible to arrange further for discussion.

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