Anyone know anything about Letters of Credit

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13 years 3 months ago #17226 by ronnie
Hi all,

Have some serious questions about this. If anyone has first hand knowledge of these things, I would love to hear from you. Either reply on here, or PM me, or even email me directly.

Am particularly wanting to know the pitfalls, what can go wrong, etc etc etc

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13 years 3 months ago #256648 by feedqueen
my OH imports stuff all the time.From what I can gather your bank agrees to an exchange rate in a foreign currency , pays it for you at a selected time so your goods can leave the factory and get on a ship in time.In due course -in his case about 120 days I think,must be negiotable- the bank then deducts said amount from your account direct. Traps are xtra costs i.e, recieving bank adding extra charges on you might not be aware off,customs etc, having original documents in full and on time and of course waiting till the exchange rate is reasonablly favourable- thats the hard bit. I think he makes the call after a lot of watching whats going on - its a final decision and you can lose a lot - or make a bit more profit- if you time it right, makes a call to the bank and says do it and its done. Hes sound asleep in front of the telly so if you would like specifics can ask him when awake!!

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13 years 3 months ago #256676 by Llew
It's almost like a cheque. Funny, in my very first job (1980s, buying mining machinery & supplies), I got a nasty telex from a Korean firm telling me I'd need to get them a letter of credit for $80,000 by noon, or a shipment of steal wouldn't be loaded.

No-one in my organisation seemed to know what a letter of credit was, so I went to the bank & asked them.

ANyway, I actually signed a letter of credit for $80,000 dollars (I was like, the stores clerk) & had it conveyed somehow to Korea (can't remember if we had faxes in those days).

It was 6 months before I was called into the CFO's office to explain how I was authorising the expenditure of large sums of public money :)

Luckily he had a sense of humour, and I'd done the right thing (just not the right way). Had no problems with letters of credit from our Accounts dept after that though.

[SIGPIC][/SIGPIC]

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13 years 3 months ago #256688 by Finn McCool
I transacted L/C's for a decade in a few different banks - what do you want to know?

Your best sources of information would be your bank (ask for the Trade Finance Dept) and/or NZ Trade & Enterprise.

As to what can go wrong... quite alot.

Rule no. 1 on international trade, if you don't trust who you're dealing with, no amount of L/C's or guarantees will be enough to keep you safe.

Knowledge is knowing a tomato is a fruit, wisdom is not putting it in a fruit salad.

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13 years 3 months ago #256693 by ronnie
Thanks guys,

I have a potentially large order pending. We are still at the negotiating stage but she is offering to pay a percentage as a t/t and the balance L/C.

Have not had to deal with such matters in the past hence know nothing about them.
Have had a good read up on google, but still like to have some personal experiences to go on.
Buyer seems genuine at this stage of proceedings, but will do some more digging and see what happens.
If nothing else, it brightened a somewhat grey day yesterday[;)]

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13 years 3 months ago #256700 by Finn McCool
Speak to NZTE, I believe they're now offering trade insurance and that may be easier and even cheaper in the long run.

Basically, if you have an L/C it will stipulate the documents that you must present to the bank to receive payment. Your bank may accept your documents as correct (that is 'correct' to the letter, not just in intent), but the buyers bank also need to accept them as correct before payment will be effected. Your bank may well advance you the funds upon presentation of documents, however will retain recourse if payment is not forthcoming from the buyers bank.

If the buyer's circumstances change and/or they do not wish to continue with the purchase, it's not unknown for some offshore banks in certain parts of the world to 'manufacture' discrepancies on your documents to avoid meeting their obligations.

If this is likely to be a regular buyer, there's alot to be said for meeting them and getting to know their operation. Payment in advance is obviously the safest method, but a trade guarantee will probably cover 80% of the invoice amount and is probably not as expensive as you may think.

In the current environment, you need to stay as safe as possible - trust no one, particularly offshore.

Knowledge is knowing a tomato is a fruit, wisdom is not putting it in a fruit salad.

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