A letter of credit is a written document where exporters and importers settle the provisions for the payment of the merchandise. The payment clauses should indicate the amounts and forms that the seller will receive payment. This clause is contained within the letter of credit and it is essential to understand what terms apply to the transaction.
Payment clauses are really important, because they are written based on the following considerations:
Payment clauses are what determines when, how much and how the exporter will be paid. When writing them in the letter of credit, the importer should draft them with a bank representative.
Banks will use payment clauses and compare them with what is written in the letter of credit. The letter of credit will contain the provisions agreed by the exporter and the importer and which will be later reviewed by the bank.
The letter of credit is the document where the importer and exporter show the terms and conditions of their commercial relation. The bank uses this letter in order to pay for the merchandise to the seller. If it is a revocable letter of credit, the importer or the exporter can modify the letter to a certain degree if they are not satisfied. Otherwise, a letter of credit can only be modified with the approval of all participants. It is more legally binding that any commercial contract.
Banks make pre printed forms available for importers. The information contained in these forms is generally aligned with the SWIFT coding system that is used to exchange data between banks and is necessary for international transactions. In most cases, the instructions for opening letters of credit will be sent by the originator to the issuing bank by mail or email.
It is the issuing bank which in cooperation and by request of the importer opens the letter of credit. The exporter will receive payment for the merchandise if the transactions were done as the letter of credit established it.
Once the exporter is notified that the credit is approved, he or she can deliver the goods for shipment under the terms of the letter of credit. The exporter then presents the documents required by the issuing bank (usually the bill, the insurance policy and the ticket) in order to submit a payment request.
The bank will then use that information to move the payment transaction forward when the conditions set by the importer were respected. The documents are later sent to the importer so that he or she can take possession of the products.
Payment clauses are really important, because they are written based on the following considerations:
Payment clauses are what determines when, how much and how the exporter will be paid. When writing them in the letter of credit, the importer should draft them with a bank representative.
Banks will use payment clauses and compare them with what is written in the letter of credit. The letter of credit will contain the provisions agreed by the exporter and the importer and which will be later reviewed by the bank.
The letter of credit is the document where the importer and exporter show the terms and conditions of their commercial relation. The bank uses this letter in order to pay for the merchandise to the seller. If it is a revocable letter of credit, the importer or the exporter can modify the letter to a certain degree if they are not satisfied. Otherwise, a letter of credit can only be modified with the approval of all participants. It is more legally binding that any commercial contract.
Banks make pre printed forms available for importers. The information contained in these forms is generally aligned with the SWIFT coding system that is used to exchange data between banks and is necessary for international transactions. In most cases, the instructions for opening letters of credit will be sent by the originator to the issuing bank by mail or email.
It is the issuing bank which in cooperation and by request of the importer opens the letter of credit. The exporter will receive payment for the merchandise if the transactions were done as the letter of credit established it.
Once the exporter is notified that the credit is approved, he or she can deliver the goods for shipment under the terms of the letter of credit. The exporter then presents the documents required by the issuing bank (usually the bill, the insurance policy and the ticket) in order to submit a payment request.
The bank will then use that information to move the payment transaction forward when the conditions set by the importer were respected. The documents are later sent to the importer so that he or she can take possession of the products.
About the Author:
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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