A popular financial tool for international trade is the letter of credit (LC).

Trade finance has become an integral tool of modern trade, a crucial element facilitating what is known as the trade cycle funding gap.

The LC covers the financial security required for a transaction to take place between a buyer and seller of goods across borders.

The Documentary Letter of Credit (LC) is an effective solution that helps eliminate risks for both the buyer/importer and the seller/exporter.

Rules known as Uniform Customs govern a Letters of Credit and practice for Documentary Credits set by the International Chamber of Commerce.

Several benefits to using a Letter of Credit include:

• The buyer can buy the goods and pay for them after the shipment of goods.
• There can be no financial risk to the buyer if the goods are not shipped after the order is placed.
• The issuing bank extends its credit to the buyer which helps the factory purchase materials for manufacture.
• The buyer can be assured that goods are shipped on time, failing which there is no liability to pay.
• The seller does not run the risk of cancellation of the order as the Letter of Credit is irrevocable.
• Payment is assured after shipment on submission of documents complying with the terms of the Letter of Credit and other conditions.
• It helps to raise finance for the production of goods thereby meeting working capital requirements.

As you can see from above, the letter of credit is an important tool for international trade. Performance and protection from both sides can be mitigated by the use of payment guarantees including raising additional funds to procure materials.

Whether you require pre-shipment finance, production finance for manufacturers, Government contract finance, structured inventory finance, project finance or letters of credit to secure international or domestic production, Stak can help.

Need capital to raise a letter of credit? Speak to Stak.