Is your company heading to the international markets?
If the answer is yes, you are bound to bump into a letter of credit as a trade finance instrument. It seems to be mysterious and difficult with a complete book full of rules and regulations. It is not, though, if you have personnel that know how to handle it and how the set of rules works. The International Chamber of Commerce has published the set of rules UCP600 for the usance of documentary credits.
How to be friends with the documentary credit?
The problem is that in small and middle sized companies there may be lack of competent people who have experience in this field of expertise. And today there is no time to wait that somebody in the company will obtain the needed knowledge. This is why I started my company – to be able to help these companies – to train their personnel or to give my knowledge to the benefit of the companies.
Based on my knowledge I can tell you that all documentary credits are different. Even if they come from the same customer and the same bank they are bound to have some sort of difference in the contents. The clearest and simplest letters of credit I have seen were issued in South Korea and the most complicated letters of credit come from the Middle East or some African countries and this has nothing to do with the importation of the goods to these countries. There are clear cultural differences of the issuing banks even though the rules are the same through out the world.
It is very important to the sales people to know how the letter of credit works so that they can avoid such conditions or documents that prevent the fluent cash flow. The documents issued or signed by the applicant i.e. the buyer, should be avoided. This does not mean that the documents issues by the beneficiary only are shady or that they’ll cause some problems in the importing country. It means that anything can happen. Maybe you cannot get the right person to sign the documents in time, or the required person has left the company and you loose the security offered by the letter of credit.