Having the money to do business, without having to work in cash and with a good name behind you is always nice. A Letter of Credit is a written promise by an importers bank to the exporter's bank that an amount in a specific currency will be paid within a certain time. There are conditions that will have to be adhered to and certain documents need to be forwarded. The documents that are needed are a Clean Bill of Lading, Commercial Invoice and a Certificate of Origin.
These are normally used when one buys something from overseas and the transaction is between suppliers in one country to another. This form of letter is controlled by the International Chamber of Commerce. These letters cannot be changed or cancelled unless both parties approve of it.
The reason that the buyer will insist on this is so that he will feel more confident that he will actually get paid. Working with a person one does not know can be a risk in itself and at times the buyer will pull out for whatever reason leaving the seller without payment. Sometimes the order can be very large and has the potential to cause financial difficulties if things don't go according to plan.
Many people might be a bit confused about the Sales Agreement and LOC. These two are not the same as the agreement does not include a financial institution but is only between the buyer and seller. The next step is to obtain the letter from the bank in the buyer's home country. It is easier if one has already got an account where one is about to apply.
In order for this to be supplied details of how much the payment will be as well as the name and address of the seller needs to be added. The exact time it will be transported or shipped as well as how this will be done. The country of docking is also very important. All of these will need to be correct as this is a binding document.
Once this is issued the bank has now promised that the money will be sent on condition that the buyer has the financial means to pay. Depending on the bank one will then need to deposit an agreed amount or the bank might have offered to give a loan. Once all these details have been finalized the letter is then sent to the seller's bank to be looked over. It is in the seller's best interest to then go over it making sure that it is what was agreed upon.
The Harmonized System code is numbers and names of a certain product. This is generally a numbered code that is comprised of eight digits and in some cases two extra numbers are added. Every product is assigned a number according to the function and form. If one is transporting frozen peas this will be a different classification to fresh peas.
If a company creates a new product it could become expensive to correct the classification. These could also cause delays as different countries have restrictions on certain product crossing their borders. Having letters of credit will ensure that once the products arrive at its destination everyone will be covered and payment is guaranteed.
These are normally used when one buys something from overseas and the transaction is between suppliers in one country to another. This form of letter is controlled by the International Chamber of Commerce. These letters cannot be changed or cancelled unless both parties approve of it.
The reason that the buyer will insist on this is so that he will feel more confident that he will actually get paid. Working with a person one does not know can be a risk in itself and at times the buyer will pull out for whatever reason leaving the seller without payment. Sometimes the order can be very large and has the potential to cause financial difficulties if things don't go according to plan.
Many people might be a bit confused about the Sales Agreement and LOC. These two are not the same as the agreement does not include a financial institution but is only between the buyer and seller. The next step is to obtain the letter from the bank in the buyer's home country. It is easier if one has already got an account where one is about to apply.
In order for this to be supplied details of how much the payment will be as well as the name and address of the seller needs to be added. The exact time it will be transported or shipped as well as how this will be done. The country of docking is also very important. All of these will need to be correct as this is a binding document.
Once this is issued the bank has now promised that the money will be sent on condition that the buyer has the financial means to pay. Depending on the bank one will then need to deposit an agreed amount or the bank might have offered to give a loan. Once all these details have been finalized the letter is then sent to the seller's bank to be looked over. It is in the seller's best interest to then go over it making sure that it is what was agreed upon.
The Harmonized System code is numbers and names of a certain product. This is generally a numbered code that is comprised of eight digits and in some cases two extra numbers are added. Every product is assigned a number according to the function and form. If one is transporting frozen peas this will be a different classification to fresh peas.
If a company creates a new product it could become expensive to correct the classification. These could also cause delays as different countries have restrictions on certain product crossing their borders. Having letters of credit will ensure that once the products arrive at its destination everyone will be covered and payment is guaranteed.
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