Ok, so now you are a “Master” in the type of documentation that you will face. I shall be posting some real examples up so you know how these documents really look like . This will specially help the novice buyers. 

There are different ways of payment you should know about.  

Lets start with The Letter of Credit: Put simply, the buyer and seller decide on the terms of the transaction and as long as the seller complies 100% with these terms, the bank pays on behalf of the buyer. 

The Seller will normally send you the clauses or terms he wants to be specified in the letter of credit. You go to your bank and ask for the letter of credit to be opened under those terms ( which you have already negotiated with your supplier). The bank then opens what would be a “payment guarantee” to your suppliers bank. (you most probaly will  need to put a deposit for the letter of credit depending on your bank.) 

Ok that simply put is what it is all about.  

Now, this used to be the preferred way of payment for suppliers before, since in effect the letter of credit ( or l/c as it is commonly known) acted as a guarantee for them to start production and serve the goods. Also you must understand that before it was a sellers market , ie the buyer needed the goods. Hence even if there was some discrepancy( that is when there is a fault in the documents or when any of the clauses are not met), it was likely for the discrepancy to be sorted out and the payment made. 

If before 99% of transactions where done with L/cs, nowdays I would think that it is only 30% of the overall transactions.  

The reasons are mainly that buyers have become very smart and that there is more of a chance of the seller being in the “buyers hand” in deciding to pay or not.  

Ill explain myself in the next posting.

 

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