Letters Of Credit, A Key Ingredient For International Trade

By: Wade Henderson

More and more business are interested in expanding their horizons. International trade allows businesses to buy supplies from other countries and sell their products abroad.
The risks in this approach are minimal since the company was not part of their risk capital. If the company suffers a decline in their exports or imports, you can usually reduce or suspend that part of its business with a very low cost.
There are several methods by which commercial financing companies make their businesses, the most commonly used are: accounts receivable financing, factoring, letter of credit, bank guarantees, finance working capital, etc.
A letter of credit is one of many methods to provide protection to both parties involved in international transactions.
The letter of credit is a critical element of many international commercial transactions. It also discusses issues such as regulation of the item regarding the practices of international standards, referred to the parties involved in the transaction, the internationally established procedures, documentation requirements, types of credit cards and its different terms and finally the advantages, disadvantages and / or risks that might incur in the transaction of commercial financing for the exporter to the importer.
Let us now explain what a letter of credit is. This credit document involves an Issuing bank that works in coordination with the payer (mostly the importer). This institution is in charge of making the payments for the quantities agreed in the letter of credit to the recipient, or the exporter. There is also a Corresponding bank that will notify the recipient that the money can be withdrawn if and when the requirements are met.
This type of credit document is beneficial for the party paying for the merchandise, because payments can only be done upon presentation of the letter of credit.
In this context, a letter of credit will provide the legal base and structure for international transactions to be performed successfully.
Credit documents establish a relationship between the buyer, the seller, and the financial institutions that make the payments and guarantee that the process is transparent and effective.

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Wade Henderson - recognized Professional - 15 yrs in the Business Finance Field - strong reputation for getting the deal done. IMMFinancial.com Letters of Credit Advance S.B.L.C Letter Agreement

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