What Are The Advantages And Disadvantages Of Letters Of Credit
What are the advantages and disadvantages of letters of credit?
http://www.answers.com/Q/Advantages_and_disadvantages_of_Letter_of_Credit
Letter of Credit Advantages for both Importers and Exporters
For the Exporter/Seller:
Upon presentation of the specified documents (in strict conformance) the Buyer/Exporter is guaranteed payment (the exception is if the Issuing Bank folds)
Eliminates risk of the buyer canceling the order and therefore reduces production risk
Makes it easier for the Buyer/Exporter to secure order/production financing-pre-export financing
Easier to secure receivable financing (in case where the L/C is not payable At Sight)
Buyer cannot refuse payment by raising a complaint about the goods. Any complaints must be settled between the Buyer and Seller outside of the L/C.
For The Importer/Buyer
In most cases the Importer/Buyer avoids partial pre-payments or deposits
Helps reduce the risk of non-performance of the Exporter/Seller. If the Exporter/Seller doesn't ship the goods they don't get paid.
Certainty that payment will only be make to the Exporter/Seller upon presentation of documents in strict compliance with the L/C evidencing the shipment of goods.
Documents are received quickly, expediting customs clearance and ultimate delivery
Makes structuring an advantageous payment schedule easy
Importer/Buyer will receive timely delivery or the goods because the L/C terms dictate latest acceptable shipment date.
Disadvantages for Using Letters of Credit (L/C's) Now that you all think that Letters of Credit are the best way to go, think again. LC's have disadvantages to both importers and exporter. So before, deciding to use an L/C for your transaction it is worth considering the following:
Disadvantages for the Importer/Buyer:
Ties up the business credit line
Unless currency-hedging strategies are utilized, the actual cost of the goods can increase do to vulnerability to currency fluctuations.
Costs involved with issuing, negotiating, and
http://www.answers.com/Q/Advantages_and_disadvantages_of_Letter_of_Credit
Letter of Credit Advantages for both Importers and Exporters
For the Exporter/Seller:
Upon presentation of the specified documents (in strict conformance) the Buyer/Exporter is guaranteed payment (the exception is if the Issuing Bank folds)
Eliminates risk of the buyer canceling the order and therefore reduces production risk
Makes it easier for the Buyer/Exporter to secure order/production financing-pre-export financing
Easier to secure receivable financing (in case where the L/C is not payable At Sight)
Buyer cannot refuse payment by raising a complaint about the goods. Any complaints must be settled between the Buyer and Seller outside of the L/C.
For The Importer/Buyer
In most cases the Importer/Buyer avoids partial pre-payments or deposits
Helps reduce the risk of non-performance of the Exporter/Seller. If the Exporter/Seller doesn't ship the goods they don't get paid.
Certainty that payment will only be make to the Exporter/Seller upon presentation of documents in strict compliance with the L/C evidencing the shipment of goods.
Documents are received quickly, expediting customs clearance and ultimate delivery
Makes structuring an advantageous payment schedule easy
Importer/Buyer will receive timely delivery or the goods because the L/C terms dictate latest acceptable shipment date.
Disadvantages for Using Letters of Credit (L/C's) Now that you all think that Letters of Credit are the best way to go, think again. LC's have disadvantages to both importers and exporter. So before, deciding to use an L/C for your transaction it is worth considering the following:
Disadvantages for the Importer/Buyer:
Ties up the business credit line
Unless currency-hedging strategies are utilized, the actual cost of the goods can increase do to vulnerability to currency fluctuations.
Costs involved with issuing, negotiating, and