Does anyone have experience with "letters of credit" from companies in China? Thank you, Lisa M. Faulkenberry
Administration Support Manager
Jim's Supply Co., Inc.
3530 Buck Owens Blvd.
P.O. Box 668
Bakersfield, Ca 93302
Website: http://www.jimssupply.com
Email: LFaulkenberry@jimssupply.com
Phone: (661) 324-6514 Ext. #120
Fax: (661) 716-0305
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Posted 2 years ago #
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Ms. Faulkenberry--
When a forest products company I worked for dealt with Pacific Rim exports, requiring letters of credit, the first thing we required was that any such document needed to be irrevocable. That is, the bank honoring the agreement had no "out" which would avoid their being required to pay. I would review the conditions of the LOC, as did both our controller and CFO, before giving it to legal counsel for final approval.
It is especially critical on LOC's that all of the information be read and understood before the company signs off on it. One exception I came across would have held our payment until the goods were accepted, rather than just delivered. The trick here was the "acceptance", which required inspection of the lot, and allowed for rejection of payment if *any* article in the lot was deficient, with any returns being charged against the balance owed, at premium freight rates.
If the LOC is irrevocable, then the bank guaranteeing it is required to pay you, so long as you meet all other requirements of the document.
Posted 2 years ago # -
Lisa,
As F. Scott Wilson mentions, payment can be delayed if the LC wording leaves anything up in the air. Keep in mind that the banks are only concerned about the accuracy of the paperwork and its conformity to the LC. They do not have the means to judge the adequacy of the material. Obviously, that can make any buyer nervous.
To eliminate any need for the buyer to approve the material on their side, there are independent surveying companies who can, for a reasonably fee, inspect the material prior to export and watch it being loaded into a sealed container. It could even be an individual the customer knows and trusts. Your goal is to remove any LC payment contingency based on acceptance.
If you can convince the buyer to issue a LC payable at sight rather than usance, you eliminate questions of material acceptability since payment is due when the original documents are presented to the bank.
After all is said and done, depending upon the closeness of the relationship between the buyer and his bank, they can delay and dispute payment on flimsy documentary discrepancies as leverage for some consideration. While it is rare and while it is difficult to withhold payment indefinitely, no transaction is completely risk-free, including an irrevocable LC.
Posted 2 years ago # -
I also have experience with customers in the PRC with my previous employer. In my experience, the key to success is to ensure that the LC is confirmed by a U.S. based bank. The biggest challenging often was finding a reputable bank to confirm the LC.
Posted 2 years ago #
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