Have you heard of Letter of Credit (L/C)?

This is one of the payment methods when trading. Trade transactions are conducted between exporters and importers. A deal with foreign company is different from domestic one, so there are possibilities of various risks. L/C is often used when importer and exporter have concern about payment risk each other. 

In case of paying in advance, it's possible that importer would not get goods. On the other hand, if an exporter ship goods before receiving the payment, it has the risk that you are not able to collect the payment. So, a bank guarantees the payment so that either one does not suffer from such a risk.

We will shortly explain the flow in 7 steps of L/C.

Step 1. Sales Contract

A sales contract is concluded between exporter and importer.

Step 2. Obtaining L/C

You will ask the importer to open L/C to the bank. Then, the importer will obtain the L/C from domestic advising bank. Please check whether the received L/C is "Irrevocable letter of credit".

Step 3. Notice of L/C

The beneficiary bank notifies the arrival of L/C to the exporter. In the case that the importer has not paid for goods, it will be possible to charge the bank of the importer who issued L/C, so the price collection risk will be low. 

Step 4. Shipping of Goods

Exporters arrange a vessel and ship goods under contract terms. And we will prepare required documents. We make the documents based on the L/C. If it does not match with the condition of L/C, it may be refused as a discrepancy (that does not match the described matter in the L/C) by the bank. Therefore, it would be better not to complicate like it make a lot of conditions in the L/C.

Step 5. Obtaining Bill of Lading 

The shipping company will issue the bill of lading (B/L) to the exporter in exchange for the goods. After that, the exporter submits the original L/C and the required documents of shipment (If you have insurance, we will also submit the document of it) and then requests the bank to collect the bill of exchange. The beneficiary bank check the all documents, and they makes the payment instead of the importer if there is no problem on the documents.

Step 6. Sending Bill of Exchange

The beneficiary bank will send the bill of exchange and shipping documents to the applicant bank that issued the L/C. The applicant bank who receives them pays to the beneficiary bank. And they will notify the arrival of documents to the importer, and they make the payment to applicant bank.

Step 7. Receiving goods

By using a transaction of the Letter of Credit, exporters can collect payment at the same time as shipping, and for importers no need to pay in advance.

Please be noted that we need to confirm the conditions of L/C with each other in advance after negotiation is done. 

You can feel easy when doing business with us as we have much experience of L/C payment.

If you have any inquriy on L/C,

Please CONTACT US: http://yamada-co.jp/en/contact/

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Yamada Sharyo Co., Ltd.

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