Advantages of Letter of Credit (LC) to exporters


The information provided here is part of Export Import Online Tutorial

  

Advantages of Letter of Credit to Exporters



What are the advantages of an LC for Exporters to ensure his amount of sale of goods?  In this article, we are discussing about the advantages of Letter of Credit to Exporters.

 

One of the best methods after advance mode of payment for any business transaction is Letter of Credit (LC) mode, as buyer’s bank guarantees payment to seller through seller’s bank on presentation of required documents as per LC.
The major advantage of Letter of credit to a supplier is minimizing of credit risk. In an import and export trade, the geographical distance between importer and exporter is very far; hence ascertaining credit worthiness of buyer is a major threat. In a mode of Letter of credit, such risk can be avoided.

 
Disadvantages of Letter of credit (LC) for Exporter copyBuyer can not deny payment by raising dispute on quality of goods, as letter of credit terms and conditions are based on documentation. This is a major advantage of Letter of Credit in terms of seller point of view. Some of the fraudulent buyers deliberately delays or hold payments by complaining on quality of goods. In a letter of credit terms of business transactions, rejection of export payment by raising complaint on quality of goods can not be effected.


LC provides a security to exporter which is another advantage of a letter of credit. Based on such security, the exporter can preplan his further business activities to strengthen his business world.

 

In a letter of credit, any dispute in transaction can be settled easily, as LC terms and conditions are under the guidelines of uniform customs and practice of documentary credit. This is another advantage of a LC for an exporter.

 

 

 

In a letter of credit, all required documents have been mentioned well in advance of shipment and there is no confusion or misunderstanding to the importer (buyer) to inform supplier to act in between. This is a good advantage for a supplier to preplan efficiently which saves time.


Against a Letter of Credit, an exporter can avail pre shipment finance from banks or other financial institutions. This is another advantage of Letter of credit for a seller. Many banks extend financial assistance with minimum bank interest, as letter of credit is a ‘safe export order’.

Assurance to receive money in full is another advantage of letter of credit. During my career, I had bitter experience on some of the transactions that I had short received invoice amount under a non LC transaction by informing us one of the other reasons by buyer. In a letter of credit, an exporter can ensure that he receives full amount as per LC which helps seller to plan future business ideas.


Another advantage under a Letter of Credit transaction is that the exporter receives money on time. As you know, ‘finance at right time’ is a prime factor for any business transaction. So if a business man receives his anticipated amount on time, he can plan his business activities smoothly without wasting time. This is one of the major advantages of letter of credit. Assurance to receive money on time is one of the major advantages to supplier/exporter in a Letter of credit terms.


Normally and widely, a confirmed irrevocable LC is opened by buyer and seller which is suitable for both. A ‘confirmed irrevocable letter of credit’ is a ‘confirmed order’ for any exporter is concerned. So the exporter need not worry on cancellation of his export order or changes in said order. This helps a lot for an exporter for his business plans in various levels including financial plans, minimizing production risk, saving time etc.


Meeting delivery schedule by proper production plan is one of the major advantages under a letter of credit terms of business. Normally, under a non LC business terms, the buyer may keeps on changing delivery schedule as per their requirements time to time. So this change of delivery schedule at importer’s interest leads exporter to rearrange his overall daily business activities.

 

You can also read more information by clicking   Letter of credit - How does LC work?  How LC is benefited to Importer?   Are there any disadvantages to importer for a consignment under Letter of Credit?   What are the disadvantages of LC to an exporter?   Who are the parties involved in Letter of Credit?   How to check authenticity of LC? What is Prime Banker?  Yes, I am sure, once after going through those articles, you will have a good knowledge about Letter of Credit.

 

In this article we have discussed about the advantages of LC for exporters.  Do you wish to add more information about advantages of Letter of Credit to Exporters?  Share your experience in handling Letter of Credit and share below about avantages of Letter of Credit for Exporters.

Comment below your suggestions about this article - Advantages of Letter of Credit for Exporters.

 

 

 

 

 


The above information is a part of Import Export Training online


What is LC Letter of Credit in export import business

How does Letter of Credit work?

Is Letter of Credit (LC) a safe mode of payment for an Exporter?

How to open an LC? Procedures to open a Letter of Credit

Spelling error in LC? Is wrong spelling a discrepancy under Letter of credit?

Difference between Letter of credit and Bank Guarantee

Terms used in shipping such as letter of credit (revocable),letter of credit (negotiable),letter of indemnity



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Comments


Rahul: But mostly buyers are using discrepancy clause in Letter of Credit and sometime they intentionally and wilfully pinpoint discrepancy in the documents and avoid payment because by that time LC time period gets expired. So what is the solution for this manipulation ?

imran: what is a LC ? describe me in a details

kapil: Hi. My name is kapil and i had completed my diploma in International Business in 2008. due to some wrong choices and confusion, i did not pursue the bachelors in the same field, however, i am keen to work in the same field but i do not hold the knowledge and experience anymore. Though i know some of the basic but not in practical terms. please suggest me a way to get a job. thanks kapil

Amit Sharma : I am a regular reader of your blog, having a query, Can we do the switch BL (third country export/ Import) ( air / Sea) against Letter of credit, if yes please share the procedure.

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