of Credit Transactions and Your Business
issues ago I talked about the Letter of Credit (L/C) and how it
is used as the primary tool to manage the risks inherent in trade
finance within the international arena. The L/C serves two purposes:
to provide a payment mechanism for merchandise that t has been shipped,
and to reduce the risk of the transaction for both the buyer and
the seller. This time I'd like to focus on the typical L/C transaction.
L/C's and collections entail the transmission and review of documents,
the manner in which your bank manages the flow of paperwork affects
how you can manage corporate cash flow.
the basic terms of L/C's have remained unchanged for centuries:
has allowed banks to streamline the process and reduce the paperwork
involved. Banks that have invested in advanced technology can
give their clients quicker service and more management information
than banks that have not. Technology also is the key to lower
error rates and faster resolution of problems.
timing usually is a company's highest priority. "When will I
get paid?" is the typical exporter's first question. How quickly
your bank handles the document flow in a L/C transaction is
critical to how quickly you get your money.
a transaction is initiated, the bank inputs the data into its computer
system, which identifies the payment and tracks items from presentation
of documents through the payment of cash proceeds. Up-to-the-minute
reports generated by the system allow you to continuously monitor
payment of your export receivables.
banks can monitor how long it takes to process a transaction
and can provide you with a track record. Others may even guarantee
payments within intervals ranging from five business hours to
several days. While most L/C's should be processed on the same
day, you should insist that all L/C's be processed within three
business days of receipt of documents in conformity with the
terms of credit.
you use L/C's regularly, visit your bank office to see first hand
how your L/C's are processed. A quiet, well-organized bank office
is one sign that your L/C's are being managed properly. While you're
there, ask about of your outstanding L/C's and see how long it takes
your banker to come up with this information.