Letters of credit are sometimes a necessary part of a
shipping transaction. In simple terms,
banks need a guarantee of payment, and a letter of credit is a method of
guaranteeing that a shipper will get paid and that the purchaser will actually
get the shipment. In reality, though,
there are pitfalls and caveats when it comes to letters of credit. Here is what you need to know.
First, a letter of credit is not really a guarantee that
payment will be made and the shipment will be done properly. It is the a good method, but not
flawless. Other considerations are to
make oneself aware of the full charges the bank will levy (or could charge) and
add those costs against the purchase price to cover against possible loss. Many a first-time shipper has found that
profits are quickly eaten up because the bank charges more than they expected
in fees.
In some disaster scenarios, the wording on the letter of
credit has made it nearly impossible for the shipper to get paid, or because
the term “irrevocable confirmed” wasn’t used, then the letter of credit is
thrown out. Even with the proper stamps
and signatures, that isn’t a full guarantee; after all, it isn’t as though the
certifying agencies actually open a box to ensure that what is in the box
works, is the right color, etc.
It is important to work with a logistics expert when it
comes to shipping and getting a letter of credit. It can cost a lot of time and surprising
amount of money to do it yourself. The
letters have to be worded correctly, the proper documentation has to be
presented, and then you can expect to get paid – on the bank’s timeline. Using an expert means getting to take
advantage of a great deal of experience you may not be able to tap into
yourself!
