What is a Letter of Credit?
Letter of Credit promises payment to your company’s
supplier, so long as your supplier performs according to your
order as specified on the Letter of Credit. A Letter of Credit
essentially substitutes the credit of a third party, usually
a bank or finance institution, for that of a borrower. This
serves three purposes:
Your supplier gains assurance that it can
now ship to you on an open account, instead of demanding T/T
payments prior to shipment. Upon shipment, the supplier will
present shipping documents and request payment directly from
International Trade Finance, not your company.
The Letter of Credit guarantees you that the supplier must
perform, and perform on time, before it can ask to be paid.
If the order is incomplete or late or has any number of various
discrepancies, your company has the option to reject the shipment
and refuse to pay.
Letters of Credit allow you to build relationships with new
suppliers and obtain the credit needed to allow your company
to keep up with the growing demand for your product.
Opening a Letter of Credit with a bank requires either that
your company qualify for a conventional line of credit, or
that you secure the Letter of Credit with cash. Many companies
in need of Purchase Order Financing do not meet the prerequisites
of bank lines. The ones that do prefer not to allocate a large
sum of the line to secure the Letter of Credit when the resource
can be used more productively elsewhere. And most companies
would certainly rather have cash available for more important
needs than have it sit idle with a bank to secure a Letter
International Trade Finance
covers the costs of your Letter of Credit with your buyer’s
purchase order. There are no application or upfront fees.
Once your supplier ships the goods, your company can fill
the purchase order, and International Trade Finance is paid
from the generated invoice whether from the buyer or from
a Factor. We keep only the costs of
the Letter of Credit and our fees. The rest is remitted to
you immediately as your profit.