Is Letter of Credit (LC) a safe mode of payment for an Exporter?

Is Letter of Credit (LC) a safe mode of payment for an Exporter?- 

Some tips to exporters.

As per the terms of contract, your overseas buyer agreed to open LC against the shipment to be effected by you. As you know, letter of credit is a safe mode of payment commonly for any business especially in international business also. Once after opening letter of credit in your name as beneficiary, your overseas buyer sends a copy to you by fax or mail. The original can be collected from your bank. Because, letter of credit is opened by your buyer’s bank to the seller’s bank, mentioning beneficiary of LC as you (seller). Any seller or exporter will be happy in opening a letter of credit as terms of payment because the payment guarantee is more assured than shipping by documents against payments (DAP or DA) or documents against acceptance (D.A). As per letter of credit, the opening bank of LC (buyer’s bank) guarantees to effect payment to exporter through exporter’s bank as per the agreed terms and conditions mentioned on letter of credit. My first tip to exporters is, make sure Letter of Credit (LC) has been opened with a prime bank. In other words, the opening bank (buyer’s bank) of letter of credit should be a prime bank.

Who is a ‘prime banker’ . As per the details of assets and liabilities based on the annual financial report of each bank all over the world, the authorities related to banking prepares prime bankers list. The prime banks are the banks who are strong financial background with sound assets and have been serving people with best service. The prime bankers data base will be available with all major reputed banks all over world. You can check this data with your bank. Or your bank may help you to whom to be approached to get the said data.

My second tip to exporters while opening an LC is ‘check the authenticity of Letter of Credit (LC)’.

How to check authenticity of letter of credit (LC)? 

There are many banks all over world. Now a days, after the introduction of globalization of trade, a number of banks and financial institutions have been introduced all over world with least restrictions within the country. Some of them have been working without any regulations by government also. As I have mentioned previously, you can approach your bank with the copy of letter of credit to verify whether the said LC has been opened by a prime bank.

Why LC with a prime banker is safe?: 

The financial strength and reputation among people are very high compared to other banks. So, the prime banks work professionally as per their standard banking norms. No individual or firm can influence to violate the banking rules and regulations especially the norms of international trade. This helps the clients globally to depend prime banks for smooth handling of export import business.