The Importance of Trade Letter of Credit for International Trade
To gain a remarkable foothold on the international trade platform, you need to take the advantage of a trade letter of credit. The document does not only back the stakeholders from a commercial viewpoint, but also supports the administration in a legal framework. In the UAE and beyond, you need such a letter to expand your business and gain further goodwill in the market. It has got tremendous advantages both from the buyer’s and seller’s sides.
Decreases the Production Risk
Suppose you have an order from an international trader about a specific product. The volume of the order is huge. You begin production and continue with it, manufacturing lots of units. But what if the buyer suddenly gets broke or vanishes from the scene or decreases the volume of the order? In such a situation, the credit letter comes into play. It assures you of payment on the initial order. Hence, it is important in decreasing the production risk of the project deal.
Protection Against Time Lag
When you fulfill the conditions of an order for an international buyer, there is a specific time lag that you need to consider. You need to prepare the delivery package and ship it to its destination. There are some days spend in this process. Naturally, you need to get the payments for your services. But the seller will not pay you in full unless he receives the finished products. Also, there may be cases of deferred payments. To counter such cases of time lags and deferred payments, the credit letter comes to your rescue.
Suppose you are the seller and the buyer fail to pay you in full. There are defaults on his part. Will you stop your business operations or is your trade doomed? Not at all! Don’t be worried as the issuing bank that provides the credit letter shoulders the responsibility to pay you the assured amount that had been mentioned in detail in the trade deal, when it was signed by all the primary stakeholders. You receive your payments on time.
With the credit letter issued by a bank authority, you, as a seller, are in a strong position to demonstrate your solvency in the market. The businesspersons from the trading community will trust you more.
Controlling the Tenure of Shipping the Products
There are certain provisions in the credit letter that gives you the power, as a buyer, to control the tenure for the shipment of the final products.
Refer to this reliable source that clearly provides you with important information about the above-mentioned financial issues.