A letter of credit is one of the financing solutions banks and other financial institutions offer to businesses involved in export and trading. A letter of credit is a legal document passed between banks, and the buyers and sellers. It is a written promise that the holder will be paid if they fulfill all specified requirements, as stated on the official document.
Transactions involving this type of financial document though can be complicated at times. But if done the properly, getting paid this way comes with a variety of advantages. Below are some useful tips you can follow to make sure you will get paid through this type of official financial document:
Give your customers clear and detailed instructions on how to issue a letter of credit in your favor. Don’t be embarrassed about providing your customers some documents, merchandise description, partial and transshipment conditions that will enable them to follow the whole process properly. There will be instances that it would be the first time for a customer to use this type of financial document. For you and your customer to avoid various hassles, give them all the necessary information they need and take the time to ask them if everything is clear or if they require any additional details or any assistance you can offer them.
Request for a copy of the buyer’s application for a letter of credit. Ask the buyer to scan and send you the application before submitting it to the bank or financial institution. Go over it carefully and make sure all the details and stipulations are correct. By following this tip, amendment-related delays and expenses will be easily avoided.
Once you get a copy of the document, use a checklist to compare its accuracy against the appropriate internal departments. To make sure you can accept the document, you can use a routing slip to record all required department signatures. And if necessary, ask for revisions before accepting the final financial document.
Make sure the document contains only the information required by the letter. Excess information can just cause discrepancies which can further result in delays or payment refusal. Before present your documents, make sure that any needed corrections or changes have already been done.
Finally, insist that the letter of credit be payable at the counters of the local banks you frequently deal with or have an account in. Banks that you have past or recurring dealings with tend to be more responsive and caring than out-of-state or out-of-country banks that you do not have any history with or do not know you.
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