Payment method is very important when you purchase something especially from foreign countries. How do you trust about the companies, for example, if it’s large purchase from their website?

This time, we will introduce ‘L/C payment’, which is one of the most secured payments among trade transactions. “L / C” in the trade world stands for Letter of Credit issued by banks.

What are the risks of trading?
For example…
If you are an exporter, ‘I have sent our cargo, but the importer does not pay.’
If you are an importer, ‘I paid, but the goods did not arrive.’ etc.

L/C is a payment method to reduce such risks. In L/C, a bank enters between an exporter and an importer and mediates the transaction. The following 4 parties are involved in L/C settlement.
 

1. Conclude a sales contract between the exporter and the importer.

2. Importer decides L/C as the method of the payment.
3. The importer asks the opening bank to issue an L/C (documents).
 

4. Opening bank sends L / C to the advising bank

5. The advising bank tells the exporter that they have got the L/C from the opening bank.

6. The exporter checks that the L/C has been made according to the contract. At this time, if there is a mistake in the documents, ask the exporter for an L/C amendment.

7. The exporter prepares shipping documents etc. according to L/C. Prepare all required documents and submit them to the advising bank.

8. The advising bank will check to ensure there is no difference between the contents of the L/C and the documents submitted by the exporter. If there is a difference, the importer will not be paid for the trade. This state is called ‘discrepancy’. There are two ways to resolve discrepancy: Letter of Guarantee and Cable negotiation.

9. After all problems are resolved, the advising bank will buy the documents from the exporter. The exporter now receives the payment.
 

10. The advising bank sells the documents to the opening bank. The advising bank is now settled.
 

11. The opening bank sells all of the export documents to the importer. At the point, the bank in the importing country will be completed the settlement. And, the importer now gets the necessary trade documents for cargo pickup.

12. Once the importer has filed a declaration with customs and obtained an import permit, the importer can use the bill of lading to collect the cargo.

For L / C settlement, it is important that the letters of credit and the contents of the trade documents match. Please let us know if you consider to purchase some trucks by L/C. We are glad to support you.

Please check our recommend units!
https://yamada-co.jp/en/stock/?search-recommend=1

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Yamada Sharyo Co., Ltd.

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