Within my 15 year career at Business West I have helped thousands of businesses with their export documentation and have encountered the many pitfalls that exporters face when trying to get paid. In this post I am focusing on why exporters should use a Letter of Credit to guarantee payment for their exports, what the problems are and how to avoid them.
What is a Letter of Credit?
Letters of credit are official documents used by thousands of businesses across the UK to guarantee payment for exporting their products or services. The Letter of Credit will be issued by a bank and will contain strict terms specifying both the amount of money to be paid and within what time frame.
Why use a Letter of Credit?
A letter of credit provides considerable security for the exporter and is often used to ensure contractual provisions are met. Once an international customer has agreed to all the specified terms within the document then it is more difficult for them to withdraw from the transaction. However, the exporter must also understand the conditional nature of the letter of credit and the fact that payment will not be made unless the terms of the credit are met precisely.
Are there any problems associated with a Letter of Credit?
There are a number of different types of Letter of Credit and it’s vitally important that you select the appropriate method for your business. 75% of exporters who do their own documentation get it wrong first time, which can lead to additional costs and unexpected delays.
Preparation of all documents called for by a Letter of Credit requires meticulous care and attention to detail. Staff undertaking Letters of Credit need knowledge of both the shipping world and the banking industry. The cost to UK business through presenting non compliant documentation to banks is estimated to run into hundreds of millions of pounds per year.
How do you get a Letter of Credit?
We can offer expert guidance and assistance with selecting and preparing the correct Letter of Credit. This bespoke service has a higher first time approval rate with the banks and can save you time, money and help to avoid bad debts.
Find out more about our Letter of Credit service here or if you have any questions please drop them in the comments box below.