Indeed, what is a Letter of Credit for Exportation?

Every company which exports any kind of cargo or service must guarantee the payment of the trade transactions by the responsible exporter. The safest legal way is by issuing a Letter of Credit.
This document specifies the essential information about the negotiation made, such as the value of the transaction, description of the goods or service, the data of the companies, meddled with and guided by the banks chosen by both.
Nonetheless, it is important to highlight each company in its country has to find a financial institution which meets all the negotiation expectations.
Briefly, the Letter of Credit for Exportation is considered as a payment obligation of an international transaction and assures the exporter will receive from the importer the amount agreed provide that all the requirements specified in the document are kept.

What are the advantages of a Letter of Credit for Exportation?

As mentioned previously, the Letter of Credit is an essential document for international negotiations whose aim is to assure the payment of the transaction between the companies.
Thus, the first advantage is the safeguard of the values negotiated and it is feasible due to the involvement of financial institutions that follow the rules of International Chamber of Commerce. The latter is responsible to prepare the international terms for this payment modality.
Moreover, the importer is also guaranteed by the register of the payment and conclusion of the product / services negotiation – this ratifies the right to receive the credit.

How does the payment by Letter of Credit for Exportation work?

The values negotiated by both parties will be paid by the issuing bank of Letter of Credit, chosen by the importer and in the origin country by another financial institution, placed in the exporter´s country. These values can be credited at sight or on Credit (in installments).

To understand the differences, go on reading below:
• • At sight: the exporter will receive the amount at once as long as he presents all the documents required in the Letter of credit to the advising bank in his country;
• • Payment on Credit / in installments: the exporter will receive a bond of credit, known as Bill of Exchange and will be debited in the future.

The Payment on Credit – Step by Step:

• 1. The investor performs a loan the bank (intermediary company between the issuing and the advising bank).
• 2. The same investor will receive the amount from the financial institution which will be used for the payment of the negotiation with the exporter.
• 3. Finally, bear in mind this operation involves taxes and interests based on the current table used by the issuing bank.



When should a Letter of Credit be requested?

In every international negotiation, especially between new importers and exporters, the Letter of Credit is undoubtedly the most adequate and safest procedure to receive the payment.
After all, it guarantees the international transfer of values, legally and safely to both parties.
Nonetheless, even if one has all the documents to validate the request of a Letter of Credit for Exportation, it is advisable to care the following: the issuing bank will merely analyze the documents. In other words, it won´t be responsible for any inspection of the goods stored.
Thus, it is recommendable the importer contracts a company of inspection in the origin country to avoid problems and guarantee the integrity of the goods.
This procedure has to be duly reported to the exporter and documents delivered to the bank so that it validates the authenticity of the cargo to the buyer.
As a result, the process gains more credibility as the information mentioned in the Letter of Credit meets what was previously negotiated by the parties.

What are the conditions to have a Letter of Credit?

If your company wants to request a Letter of Credit for Exportation, it, on behalf of the importer, has to prove to the issuing bank to be able to settle all the financial expenditures of the negotiation. Needless to say both companies must know the contents, conditions and terms cited in the Letter of Credit.
The exporter, on the other side, has to check all the instructions indicated by the buyer once everything must be in accordance for the issuing bank make the payment.
In case there are mistakes or discrepancies in the information ceded, there might be happen delays or non-payments by the responsible bank.
In summary, these are some useful tips about the Letter of Credit as a legal and safe payment modality for international negotiations as long as both parties know how to use it with no mistakes
Nowadays there are experienced consultancy companies which can optimize the bureaucratic and operational procedures of your business, the purchase and international sales.