Shenzhen L/C follow-up Service
Hotline: 86-755-82143348 Email: amyhuang@citilinkia.com
Letters of credit are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.
Letters of credit are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.
Steps in the L/C follow-up Process
1 Buyer and seller agree to terms including means of transport, period of credit offered (if any), and latest date of shipment acceptable.
2 Buyer applies to bank for issue of letter of credit. Bank will evaluate buyer's credit standing, and may require cash cover and/or reduction of other lending limits.
3 Issuing bank issues LC, sending it to the Advising bank by airmail or electronic means.
4 Advising bank establishes authenticity of the letter of credit using signature books or test codes, then informs seller (beneficiary).
5 Seller should now check that LC matches commercial agreement and that all its terms and conditions can be satisfied.
6 Seller ships the goods, then assembles the documents called for in the LC (invoice, transport document, etc.).
7 The Advising bank checks the documents against the LC. If the documents are compliant, the bank pays the seller and forwards the documents to the Issuing bank.
8 The Issuing bank now checks the documents itself. If they are in order, it reimburses the seller's bank immediately.
9 The Issuing bank debits the buyer and releases the documents (including transport document), so the buyer can claim the goods from the carrier.
Advantages of Using Letters of Credit For Exporters
1 Guaranteed payment upon presentation of the documents specified in the terms of the L/C.
2 Reducing the production risk, for the situations when the buyer cancels or changes his order.
3 The ability to structure the delivery schedule according to the exporter's interests.
4 The chance to obtain financing for production or purchase of goods (pre-export finance).
5 The chance to get financing in the period between the shipment of the goods and receipt of payment (especially, in case of delayed payment).
6 Using documentary letters of credit allows the exporter to significantly reduce the risk of non-payment for delivered goods, as in case of presentation of fully credit conform documents by the seller, the issuing bank pays the agreed-upon amount independently of the importer.
Advantages of Using Letters of Credit For Importers
1 Possibility to structure the payment plan in the contract according to the importer's interests.
2 Certainty that the payment will be made only upon presentation of the documents confirming shipment of the goods.
3 The use of a letter of credit allows the importer to avoid or reduce pre-payment.
4 The seller must fulfill all terms of the contract, as indicated in the L/C(shipment of the goods, meeting delivery terms on stock, amount, and deadlines) in order to receive the payment.
5 Having opened a letter of credit, the importer proves his ability to pay and can count on more favorable payment terms in the future.
6 Documentary letters of credit help the importer significantly reduce the risk connected with the seller not meeting its delivery obligations. The imported goods will be delivered in accordance with all the conditions specified in the letter of credit, and the agreed-upon documents will be received relatively quickly.
Contact Us
For further queries, please do not hesitate to contact ATAHK at anytime, anywhere by simply calling China hotline at 86-755-82143348, or emailing to amyhuang@citilinkia.com.