In today’s world, import and export plays a major role in global economy. Traders prefer importing goods from overseas and exporting to the secondary market to earn more profits. For such kind of trade dealings, Letter of Credit, the most popular trade finance instrument is being used. As it helps to make international trade transactions safer, simpler and secure.
LC gives assurance to the supplier stating that the buyer will meet the financial obligations as per the agreed terms. Also, it states that in case, if the buyer defaults or unable to meet the obligations, then the bank will be liable to make the payment. Letters of Credit can provide security to both importers and exporters as by follows:-
For Exporters/Sellers:
- If a buyer fails to pay a seller, the LC issuing bank will be responsible to pay the seller, only if the seller submits the required documents as mentioned in the issued LC. This provides security to the seller, while doing cross border transactions.
- The buyer cannot deny or reject the payment due to any issues regarding the quality of goods. But they can raise a complaint or obligation against the goods received. This also assures the seller that the buyer won’t revokes or changes the order.
For Importers/Buyers:
- Gives assurance to the buyer that they receive the goods, as per the agreed contract.
- Increases the credit worthiness of the buyer, as the LC is backed by the issuing bank.
- Provides a better way to expand their business globally.
Applying for Letter of Credit
Usually, buyers can apply for letter of credit from their bank account. It is always preferable to request a LC from a bank which they have good relation with, compared to applying at a new bank. For applying LC MT700 from banks, the banks require a full documentation of your trade deal. And also, the bank will require the buyer to remit certain cash as up front to issue the LC on behalf of their company.
The margin amount varies based on the trade transaction, credit score, financial history, trading history, company background and so on. Most often, the banks may demand the buyers to provide 100% cash margin to secure MT700. In case, if the buyer doesn’t have the cash to pay as up front, then they may deny their LC request.
In case, if the buyer doesn’t have the enough cash funds or bank facilities to avail MT700 from their bank, they can get help from Letter of Credit Providers in Dubai. They can assist the buyer to avail Letters of Credit on behalf of their company without availing any cash funds, or tangible collateral.
Avail Letter of Credit with ZERO Cash Margin & Conclude your trade deal within 48 working hours!
