Letter of Credit

When the buyer and the seller don't know each other, how do we prevent the business from failing ? And at the same time protect the interests from both the Buyer and the Seller?

The most used way is the use of a Letter of Credit. By being a Bank to Bank payment agreement this instrument is suitable for the majority of situations concerning International Commerce, once the payment goes from the Buyer's Bank to the seller's bank directly and has the Buyer's Bank garantee that if certain conditions are entirely fullfilled the payment will be done in due time.

As easy as this may look, both the buyer and the seller have to take some precautions if they want theyr interests duly safeguarded.

The main intervenients in a Letter of Credit are:
Orderer: The person that instructs the bank to open the Letter of Credit, usually the Buyer
Beneficiary. The person to receive the payment, usually the Seller
Issuing Bank: The Bank that issues(opens) the Letter of Credit
Notifying Bank : The Bank nominated to notify / Advise the Beneficiary that a Letter of Credits in his favour has been opened with the following details
Confirmation Bank: If required by the Issuing Bank the Letter of Credit can be "Confirmed" by another Bank,usually the notifying bank.

A Letter of Credit confirmation means that the Bank adding it's confirmation to a certain Letter of Credit takes the responsability to pay the due amount of the Letter of Credit if all the requirements mentioned in the Letter of Credit are duly fullfilled by the Beneficiary.

So if you're a Seller you must ask your customer to issue an Irrevocable and Confirmed Letter of Credit and check out carefully all the terms of the Letter of Credit you receive, including documentation, validity dates, goods description, etc

If you're a Buyer you must make sure that validity and shipping dates, goods description, goods origin and required documents do really meet your needs so you may be able to proceed with import proceedures without problems.

If you need further information please call Paulo Nunes Porto - e-mail: paulonunes.porto@gmail.com or at the mobile phone (+351 96 9446897)