When delivering in-company Letter of Credit training to export managers and finance teams, I consistently receive feedback along the lines of:
"Our sales people would really benefit from a guide to requesting Letters of Credit as we never seem to receive them in an acceptable format or through a preferred bank."
"Our sales people would really benefit from a guide to requesting Letters of Credit as we never seem to receive them in an acceptable format or through a preferred bank."
I strongly recommend that as export sales play as important a role as anyone in the Letter of Credit process, it is absolutely vital that they fully understand the considerable risks and costs associated with getting things wrong!
With this in mind, here is an initial guide aimed at your key sales people:
Prior to the issuance of a Letter of Credit, an exporter should consider the following:
With this in mind, here is an initial guide aimed at your key sales people:
Prior to the issuance of a Letter of Credit, an exporter should consider the following:
- Will the Letter of Credit be issued by a known bank? If not, I should contact my own bank to check the standing of the Issuing Bank. If there remain any concerns regarding the quality of the Issuing Bank, should I request that the Letter of Credit is confirmed by a major bank in my own country?
- In which country is my customer (the importer) located? If I have any concerns over the political or economic situation which may prevent payment being made, should I request that the Letter of Credit is confirmed by a major bank in my own country?
- Have I included ALL the Letter of Credit costs in my price? Such costs are not limited to bank charges, but will also relate to documentation fees (eg: Third Party documents, Certificates of Origin, Legalised Invoices etc).
- What terms and conditions will be stipulated within the Letter of Credit? Do they accurately reflect the underlying sales contract? To ensure that I am able to comply with the terms, have I discussed with the importer the following:
o The latest date of shipment: will I have sufficient time to manufacture / source raw materials in time for shipment?
o The period for presentation of documents to the bank: although under UCP 600, the ‘acceptable’ presentation period (unless otherwise stated in the Letter of Credit) is stated as 21 days, the importer may demand that documents are presented as soon as possible from / after shipment (eg: 7, 10, 14 days). Will I have sufficient time to prepare / obtain documents? Bear in mind that I may be reliant upon third parties to provide transport documents, certificates etc.,
o Payment terms. Will I be paid at sight or at a future date? Is the Letter of Credit payable in my country? In the case of deferred payment / acceptance will the bank be prepared to negotiate or discount?
o Who will pay the bank charges?
o Will partial shipments be allowed?
o From which port / airport / other location are goods to be shipped / despatched?
o Where is the destination of the goods?
Incoterms® 2010
o It may be more beneficial to consider terms such as CPT / CIP, CFR** / CIF** whereby I, as exporter, will be engaging the services of a carrier or freight forwarder acting on my behalf. This will provide me with greater control over timing and production of Letter of Credit documents to the bank. (**The ICC recommend that CFR and CIF are appropriate for sea shipments only - non-containerised cargo. If goods are containerised traders are advised to use CPT or CIP, which are appropriate for any mode of transport, including multimodal shipments where main carriage is by sea.)
Letter of Credit Training for Export Sales Managers
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