Checklist When Using A Letter of Credit

Conducting business in an international market is a risky choice and it is something that each and every business has to follow in order to gain more market standing, corporate growth and revenue generation. But is there any way through one can protect themselves from frauds and risk related to international transactions. Yes, there is one solution. It is called a Letter of Credit.

Letter of credit services is an undertaking signed by the buyer’s bank that ensures the seller that they will receive the payment for the goods and services that are purchased by the buyer. The buyer agrees to comply with the terms and conditions of the letter of credit. Despite the fact that LC is meant to reduce the chances of risks involved in international trade the risk of fraud has also increased. Below we mentioned five precautions to take before finalizing it.

Name and Address of The Company

Before jumping into and finalizing your LC, make sure the name and address of the company are clearly mentioned and in case your company has more than one address, always put in the corporate headquarter address in the documents.

Amount and Currency

Make sure that your LC has the current amount and currency for your goods and services. Also, make sure that in the sales contract you have stated the correct amount against which you have taken the credit. If you use words like approximately, roughly or something else, then it gives you an opportunity to add or 10 percent of the value of goods and services.

The Tenor of The Draft

Also make sure that your LC correctly states the final date of payment. Are you expecting payment with delivery? Or have you settled for a financing period? Whatever the case is to make sure that your LC reflects the correct tenor for payment.

Description of Merchandise

Another thing that may cause a delay in payment and fraud is the wrong description of goods and services. The merchandise description on your invoice and LC should be an exact match.

Transportation and Shipping Details

Lastly, method of shipment, the date for shipping, loading and unloading ports/airports, bills of shipments and delivery date, all this information should be clearly mentioned in the LC.