Is Letter of Credit LC safe for associate Importer?

As we know, Letter of Credit is operated supported the guidelines governed by the principles and laws of UCPDC 600 (Uniform Customs and Practice for Documentary credit 600 that came in to impact as on July 1, 2007. In a letter of credit, the buyer’s bank guarantees payment of proceeds to the seller through his bank against Is Letter of Credit LC safe for associate importer copy representation of documents as per the terms and conditions of Letter of Credit.

We have mentioned regarding the protection of letter of credit for associate businessperson purpose of view in the same internet blog. Currently, allow us to discuss whether or not the Letter of credit is beneficial for the associate importer. Is there any disadvantage for an importer to travel ahead with letter of credit against his purchase from the supplier?

Letter of credit is usually accepted by each customer and seller for his or her business transactions worldwide. Since the importer and businessperson situate distant from their workplace, Letter of Credit bridges gap between customer and seller not solely on credit risk however conjointly to minimize time, settling dispute aside from creditworthiness of customer. The foremost advantage of a letter of credit is that it provides security to each seller and buyer.

Under LC, payments are created against documents. The quality, contents and amount of products are immaterial. Inspection agency is appointed for quality, amount and direction of stuffing conjointly with reliable inspection agencies and support their certification. Bank deals with documents.

Once opened a confirmed and irrevocable letter of credit, the importer/buyer already bound with the aforesaid business credit line and may not change in between. Because of varied reasons, particularly on asking price variation, if the customer needs to stop his export order he cannot do so.

Compared to the alternative payment mode of transactions, the value of the operating letter of credit procedures and formalities are additional, which can be a further expense to associate importer particularly on modification, negotiation etc.

Currency fluctuation is one more disadvantage of Letter of credit. Normally buyer/importer places purchase orders once in a year and open a letter of credit consequently. The charge per unit might disagree at the time of effecting payment. So, if any loss because of fluctuations in foreign currency contractile under the letter of credit, ought to be beard by him. This is often conjointly one among the foremost demerits of LC.

Currency fluctuations can also impact on value variation in the native market. The demand for foreign merchandise might cut back because of such fluctuation of foreign currency. Therefore currency fluctuation is also a threat beneath the letter of credit that is treated as alternative disadvantages of letter of credit.