Exporters often adopt a method which will enable payment to be received promptly and with the minimum of risk. Although agreement may have been reached on the terms of the contract of sales, the seller could be reluctant to release the goods without guarantee of payment.
Such transactions are often conducted via Documentary Letter of Credit, a method of payment intended to protect both the buyer and the seller. The buyer applies to a bank in his/her country for credit to cover the purchase of the goods, and when the credit is opened, the bank issues a letter to the seller, which is the seller’s guarantee of payment. This payment will be made by the bank within a set period of time, upon presentation of documents to the bank by the seller which fully conform to the terms of the Credit to evidence despatch of goods to the buyer.
How many of the following problems apply to your export L/C shipments?
- Late presentation of documents to the bank
- Delays in payment
- Discrepant documents and associated fees
- Too much time spent dealing with documentation
- Inconsistent service/information
- Ongoing training needs for staff in L/C compliance
Although a Letter of Credit remains the safest method of export payment, preparation of shipping documents covered under this system requires great care and attention to detail, not to mention shipping and banking expertise.
Many companies have not identified their current payment cycle for shipments made on a Letter of Credit basis. Almost without exception, those who have carried out this exercise have been stunned at the length of time from shipment date to payment date.
Furthermore, because exporters often find it difficult to comply with the terms and conditions of the credit, most document presentations are initially rejected by the bank, resulting in high fees and worrying delays, and even non-payment.
Orratum Finance Ltd, sister company of Orratum Arbiter was the first U.K company to recognise that the correct preparation of Letter of Credit documentation could dramatically minimise payment risk and accelerate receipt of funds for its clients.
Using experienced members of staff and a pioneering web-based document management platform, Orratum Finance Ltd can eradicate high discrepancy fees and improve a company’s working capital.
- Taking care of your credit from the outset, be it the checking of documentation to ensure that it complies with the terms of the credit, or the raising of documents such as invoices and packing lists, liaising with exporter and shipper every step of the way
- Downloading of L/C directly from selected banks
- Arranging authentication and legalisation of documents if required, using our own in-house documentation service, including online certification, courtesy of the London Chamber of Commerce
- Presenting documents (electronically where possible) to the bank and ensuring that payment has been made
Are your exports paid for by Letter of Credit?