Good day every one and stay tuned as I will be discussing about International Trade Finance using trade finance instruments for risk mitigation.
There are many of these tools which I will talk about one after the other .
Trade Finance
Trade finance, the backbone of International Trade, provides the necessary financing, risk mitigation, risk management, and payment tools to facilitate cross-border trade transactions.
Without trade finance, it would be difficult for businesses to engage in International Trade, as they would be exposed to greater financial loss and operational risks, especially in a stage where both parties are having doubts about one another when engage in cross border business, where the seller is highly in need of his money and the buyer is having the money , but doesn’t want to accept Telegraphic Transfer “T/T” as payment terms due to some reasons that has to do with scam or fraud. The best thing is to Open a letter of credit “LC”
Letters Of Credit
To day I will be discussing about Letters of credit (LC) as we have eight (8) different types of LC but the nature of transaction as agreed with the exporter and the importer will determine which of the LC to take.
A lot of people do not understand that it’s not just the taking of a Letter of Credit (LC) that matters, but taking the right LC which will be acceptable to the seller when the buyer presents it to the Seller/ Beneficiary(Exporter). It is very very important, and the importer taking this LC must be someone with a strong Financial strength and capability before Considering using any of the LC.
Let me start with “Sight LC” as one of the best LC as a payment terms in international trade. Using a Sight LC when Importing goods is a common way to ensure that payment will be made to the exporter /seller when the goods have been received by the importer against the bill of lading.
To archive this, the exporter must agree on using LC as a payment terms starting on the proforma invoice “PI” and sales purchase agreement (SPS) then the importer arranges for their bank to open a Sight LC in favor of the exporter.
The exporter ships the goods and presents the necessary documents such as a bill of lading and commercial invoice to their bank.
The exporter’s bank forwards the documents to the importer’s bank, which checks them for Kyc compliance with the LC terms and conditions.
If the documents are compliant, the importer’s bank pays the exporter’s bank, which in turn pays the exporter.
It’s important to note that with a Sight LC, payment is made when the documents are presented, not when the goods are actually received. This makes it a relatively secured method of payment for the exporter.
Sight LC offers fast payment to the beneficiary, as the issuing bank will release payment immediately upon the presentation of documents of Bill of lading “BL”.
Sight LC also offers fast payment to the beneficiary, which can be beneficial for businesses that require quick access to funds.
Sight LC’s are more flexible than other types of LC’s, as they do not require the negotiation or acceptance of a draft by the issuing bank.
With a Sight LC, the beneficiary is assured of payment once the required documents are presented, which reduces the risk of non-payment. This is why It is considered as one of the best types of LC .
For more tips, private chat me on this. We issue this LC for risk mitigation. Feel the power on sight LC in smoothing your business to keep growing, from 20% to 50,000%. Oh yes!
Catch you on Sunday…
Hauwa Yakubu is an International Trade Finance Consultant/Country Manager, Trade Finance Company.
Wa.me/2348062245017
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