Finance against Letter of Credit
The most import thing in business is finance, which everyone is looking for and few are able to achieve it. And who achieve and able to manage makes name and fame around the globe.
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The common practice in business in terms of sale and purchase, where the volume is high either of the commodity or the funds, the buyer or importer is always feel safe by issuing the letter of credit. The supplier or the trader on the other hand is not able to deny since they don’t want to lose the business.
Now comes the important part, once the letter of credit is issued after certain documentations and approval of prices, the traders or the exporter starts locating a suitable financier who can provide him / his company funds to procure the cargo / material to be supplied as per the instructions in the letter of credit.
Before proceeding to the financier or arranging for finance to honor the letter of credit, do check whether the letter of credit is a USANCE or AT SIGHT.
Both are having certain terms and conditions regarding the remittance of payment to the supplier.
As a suitable and powerful financier, the banks are the best one. They extend support as per the requirement of their client once the client compiles with their terms and conditions, in order to make the bank comfortable to finance the client.
But in most of cases, the terms and conditions set by the banks are not able met, and then we have to use the second secured channel. Get the bank feel secured by providing the bank with collateral security. The banks will provide you either with Over Drafting facility or Credit Limit depending on the value of collateral security you are providing to the bank. This OD or CC limits can be utilized by the supplier to fund their pre-shipment procedure and after getting the remittance, can repay the bankers.
In my other post I will inform about options to get funds other than the banks.
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