What You Should Know About the Export LC
The risks involved in international trade are unavoidable. But there are some risks that can be avoided like failure to secure payment for goods and services that are being traded. Exporters often ship their products before receiving payment and are at risk of non-payment by the buyer. So, how can they avoid such issues? Well, the answer is getting an export letter of credit (LC).
An LC brings confidence to the exporters, which allows them to export their goods in advance without the receipt of payment. When both exporter and importer sign an LC, they guarantee that the exporter will be paid by the importer’s bank. A signed LC also ensures exporters from the risk of non-payment and defaulting of the Buyer.
Low Credit Risk
The biggest advantage of a Letter of credit is that it helps in reducing the financial risk associated with non-payment. As both importer and exporter are located in two different geographical areas in difficult to keep track of the creditworthiness of the buyer, which can be a major threat to the trade. But when the buyer applies for a Letter of credit, it assures the exporter about their ability to make payment
Cannot Deny Payment
In case of any dispute regarding the quality of the goods, a buyer cannot deny payment, according to the terms and conditions mentioned in the letter of credit. If the seller chooses to include such clause in the letter of credit terms, then it ensures the exporters, however, it is a major drawback for importers, if they have actually received low standard products.
A Letter of Credit provides greater security to the exporters who wish to strengthen their business. Another advantage of a letter of credit is that an exporter can use this document as a way to let the business world its credibility as well as financial standing.
Helps Settle Disputes
When both parties sign a letter of credit, any dispute that arises during the tenure of the transaction can be easily settled as per the terms and conditions of the LC.
Offers Financial Support
After signing a letter of credit, the financial standing of an exporter enhances comparatively. They can not only avail pre-delivery loans from major financial institutions and banks but also take a credit against their assets. There are many banks in Dubai that provide financial assistance to exporters with minimum interest against the LC. Learn more about it on our website.