Letter of Credit is abbreviated as (L / C) is one of the most important instrument of payment in international trade. Letter of Credit is vital in giving confidence to the buyer (buyer) and seller (seller) in international trade (export-import).
With the availability of letter of credit:
The seller (Seller / Exporter):
Get confidence in the availability of payment for goods and or services delivered. With the opening of Letter of Credit by the buyer, seller does not have to worry about the possibility of the goods and services are delivered or not (less) paid, as long as clause (Term and Condition) that are listed in the L / C are met. Confidence is gained by the affirmation of the bank opening L / C that the purchaser (buyer) has sufficient ability to pay and here the bank opening L / C guarantee the buyer will debited account, if the seller delivers the required documents .
Even in Indonesia, the mastery of a Letter of Credit (L / C), can be used as the basis of the petition "Export Credit (EC)" in order to obtain funds earlier than foreign banks, to be used as working capital in producing goods that was facilitated by the Letter of Credit them. Of course the bank will charge a certain interest on the loan, which is called the discount rate.
The buyer (Buyer / Importer):
Gain confidence that he / they will only pay the seller upon delivery of goods or services ordered in accordance with the terms previously agreed to be set forth in the "Term and Condition" L / C to be opened. In this case the bank will debit the account opening only a buyer, if the bank has received the required documents.
For those who are in the accounting and finance, know and understand the basic mechanism of letter of credit is important, so it can be estimated: when and how TRANSACTIONS SALES (if the company acts as a seller) or PURCHASE (if the company acts as a buyer) will lead to CASH POSITION company. If colleagues in accounting or financial control mechanism "Letter of Credit", then that is a value plus a complement of expertise in managing corporate finance (only a few steps toward higher levels of career / financial controller). Interesting is not it?.
As for those engaged in export-import world, "Letter of Credit" is something that is required to master. How could I not, the process of export-import using the instrument Letter Of Credit, step by step should always stick on (sticking) in the points "Term and Condition" listed in the Letter of Credit. Starting from:
(-). Packing Instruction: dimension, unit weight, quantity / volume per pack, side / front pack marking, etc..
(-). Required Document: Export License, Commercial Invoice, Certificate of Inspection, Fumigation Certificate, etc..
(-). Shipping Instruction: Nominated Forwarder, Port of Departure, Notify Party, Port of Destination, consignee name, etc..
Deviations (discrepancies) are very small / trivial even for instruction (instruction) and demand (requirements) are listed in the "Term and Condition" AUTO FAIL RESULT IN REALIZATION OF PAYMENT on a transaction facilitated by the Letter of Credit. And this is the responsibility of those who are in the Export-Import.
Important Note:
In a transaction using the Letter of Credit, which became the basis of realization of payment is decisive document. While the condition of the goods / services are bought and sold and other matters pertaining to the buyer-seller agreements, are outside the responsibility of financial institutions (in this case the bank), meaning: opening the right bank debits the buyer's account and must pay it to the seller through the bank documents designated as acceptable in a state of complete and in accordance with the conditions situations, regardless of whether the goods / services delivered in the appropriate circumstances by agreement between the buyer with the seller or not.
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With the availability of letter of credit:
The seller (Seller / Exporter):
Get confidence in the availability of payment for goods and or services delivered. With the opening of Letter of Credit by the buyer, seller does not have to worry about the possibility of the goods and services are delivered or not (less) paid, as long as clause (Term and Condition) that are listed in the L / C are met. Confidence is gained by the affirmation of the bank opening L / C that the purchaser (buyer) has sufficient ability to pay and here the bank opening L / C guarantee the buyer will debited account, if the seller delivers the required documents .
Even in Indonesia, the mastery of a Letter of Credit (L / C), can be used as the basis of the petition "Export Credit (EC)" in order to obtain funds earlier than foreign banks, to be used as working capital in producing goods that was facilitated by the Letter of Credit them. Of course the bank will charge a certain interest on the loan, which is called the discount rate.
The buyer (Buyer / Importer):
Gain confidence that he / they will only pay the seller upon delivery of goods or services ordered in accordance with the terms previously agreed to be set forth in the "Term and Condition" L / C to be opened. In this case the bank will debit the account opening only a buyer, if the bank has received the required documents.
For those who are in the accounting and finance, know and understand the basic mechanism of letter of credit is important, so it can be estimated: when and how TRANSACTIONS SALES (if the company acts as a seller) or PURCHASE (if the company acts as a buyer) will lead to CASH POSITION company. If colleagues in accounting or financial control mechanism "Letter of Credit", then that is a value plus a complement of expertise in managing corporate finance (only a few steps toward higher levels of career / financial controller). Interesting is not it?.
As for those engaged in export-import world, "Letter of Credit" is something that is required to master. How could I not, the process of export-import using the instrument Letter Of Credit, step by step should always stick on (sticking) in the points "Term and Condition" listed in the Letter of Credit. Starting from:
(-). Packing Instruction: dimension, unit weight, quantity / volume per pack, side / front pack marking, etc..
(-). Required Document: Export License, Commercial Invoice, Certificate of Inspection, Fumigation Certificate, etc..
(-). Shipping Instruction: Nominated Forwarder, Port of Departure, Notify Party, Port of Destination, consignee name, etc..
Deviations (discrepancies) are very small / trivial even for instruction (instruction) and demand (requirements) are listed in the "Term and Condition" AUTO FAIL RESULT IN REALIZATION OF PAYMENT on a transaction facilitated by the Letter of Credit. And this is the responsibility of those who are in the Export-Import.
Important Note:
In a transaction using the Letter of Credit, which became the basis of realization of payment is decisive document. While the condition of the goods / services are bought and sold and other matters pertaining to the buyer-seller agreements, are outside the responsibility of financial institutions (in this case the bank), meaning: opening the right bank debits the buyer's account and must pay it to the seller through the bank documents designated as acceptable in a state of complete and in accordance with the conditions situations, regardless of whether the goods / services delivered in the appropriate circumstances by agreement between the buyer with the seller or not.
Related Articles:
International Agreement Effects for National Economi
Freight Forwarder
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