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If You Must Use a Letter of Credit—Get It Right!

On: June 4, 2018    |    By: Roy Becker Roy Becker    |    2 min. read

If You Must Use a Letter of Credit - Get It Right! | Shipping SolutionsToo often exporters receive a letter of credit and then become frustrated with the terms the issuing bank has provided.

They ask, “Why would a bank issue a letter of credit with terms and conditions like this?” The issuing bank does not arbitrarily set the terms.

Setting the Terms of a Letter of Credit

Many exporters have learned that they can set the terms of the letter of credit. Several proactive techniques can accomplish this:

  1. Provide a detailed proforma invoice that gives sufficient information to the buyer for opening a letter of credit.
  2. Provide detailed instructions to the buyer for opening the letter of credit. At a minimum, a bullet-point list of criteria will go a long way.
  3. Ask buyers to fax a copy of the completed application for a letter of credit before they take it to their bank. This allows for feedback, revisions and agreement before the bank issues the letter of credit and will save time and money.
  4. If the buyer’s bank is willing, they may provide a draft of the SWIFT letter of credit prior to issuance.

Most buyers appreciate getting the information needed to issue a letter of credit. Of course following these recommendations is not fail-proof, but doing so increases the odds of receiving an acceptable letter of credit.

You can download a sample proforma invoice online.

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This article was first published in November 2014 and has been updated to include current information, links and formatting.

Roy Becker

About the Author: Roy Becker

Roy Becker was President of Roy Becker Seminars based in Centennial, Colorado. His company specialized in educating companies how to mitigate the financial risk of importing and exporting. Previous to starting the training company, Roy had over 30 years experience working in the international departments of several banks where he assisted many importers and exporters with the intricate banking needs associated with international trade.

Roy served as adjunct faculty in the International MBA programs at the University of Denver and University of Colorado in Denver. He conducted seminars at the World Trade Center Denver and The Center for Financial Training Western States, and was a guest lecturer at several Denver area Universities.

Roy retired in 2021.

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