- 30 May
Paying Overseas Suppliers By Letter Of Credit (LC)
What Is A Letter Of Credit (LC)?
A "letter of credit" is a financial instrument issued by a bank or similar financial institution that requires the supplier of goods to submit specified documents in order to receive a specified payment after a given time.
This gives the overseas supplier the confidence to ship your goods knowing that they will be paid if they satisfy the requirements of the letter of credit and it gives the buyer the confidence to know that payment can only be taken providing the required documentary evidence is supplied.
Typically a letter of credit might require the supplier to present shipping documents such as a bill of lading or airway bill, insurance documents, if appropriate, and documents to evidence the goods such as packing lists, inspection certificates and invoices.
How Can I Establish A Letter Of Credit?
You can establish a letter of credit via a bank or a trade finance house. If you establish one via a bank you may have to provide cash cover unless you have a trade finance facility. Trade Finance, also known as Import Finance, is a funding solution when raising a letter of credit. A trade finance provider will issue the letter of credit and either grant you a period of credit to repay the cost of the LC or the facility can be repaid from the proceeds collected from your customers. The trade finance provider can also assist you with the credit control function associated with collecting in your sales invoices from your customers, so you receive your profit margin less their charges.