Letters of Credit and Getting Paid for Exports

 

Documentary Letters of Credit (also known as Letters of Credit or L/Cs) are effective in mitigating the commercial and financial risks associated with trading internationally and are beneficial to both exporters and importers.

So why do companies require our support?

1.      In order to spread risk, diversify and increase margins, many exporters are developing business in a range of new, challenging and emerging markets where there will be a heightened awareness of payment risk, whether related to the buyer or the political / economic environment. Letters of Credit have a major role to play in mitigating these risks, so staff at all levels, from sales to finance and shipping need to be aware of how Letters of Credit work, how to minimise costs and administration and most importantly, how to present complying documents to the bank.

2.      We are seeing a trend for companies who have previously outsourced the document preparation to an external supplier such as a freight forwarder or consultant, to try to reduce costs by bringing this function 'in-house'. Staff preparing Letter of Credit documents thus require intensive and professional training in order to equip them with the requisite skills to do so efficiently and confidently.

3.      It is estimated that 70 - 80% of documents presented to the bank contain discrepancies, resulting in significant costs and delays in payment. Whereas previously, many companies accepted this as a 'fact of life' and trusted buyers to take up discrepant documents, in the current financial climate there is an increased awareness of potential buyer default. Finance teams in particular are anxious to generate cash as quickly as possible and it is therefore essential that every step is taken to ensure that documents comply with Letter of Credit terms.

4.      Many exporters may be heavily reliant on one or two key individuals with the experience and expertise to consistently prepare 'complying' sets of documents against Letters of Credit. There is a definite move towards upskilling a broader range of people within a business in order to mitigate the huge operational risk associated with such experience leaving, falling ill, taking a holiday or retiring.

5.      Whilst we have generally trained staff involved with the administering of Letters of Credit and associated documents, there has been a significant increase in the number of sales managers attending courses. These guys are at the 'sharp end' of negotiating export deals and it is vitally important that they understand the implications to the business of requesting Letters of Credit which may contain onerous or impossible terms and conditions.

 

How can Strong & Herd LLP assist companies with the above?

 

 

  1. Public training courses – Letters of Credit Workshop for Exporters  and Advanced Guide to Letters of Credit and Finance  
  2. In-company training
    Click here  to enquire about a Strong  & Herd LLP In-House Seminar 
    designed to a client’s specific requirements, using your own Letters of Credit as the basis for case studies and examples
  3. Consultancy – working with you to develop a strategy for managing the whole or key parts of the Letter of Credit process. This can include coaching, mentoring or training for individuals or small groups.

 
Contact Strong & Herd
to discuss your requirements
Telephone
0161 499 7000
Fax
0161 499 7100
Strong & Herd LLP, Manchester International Office Centre
Styal Road, Manchester, M22 5WB