Letters of credit are still an important tool used in international trade. They provide security for both buyer and seller where conditions may be uncertain or there is little or no previous trading relationship between the parties. However, letters of credit only provide this security when they are used in a prudent manner - it is essential that exporters remember that documents must be in strict compliance with the credit to secure payment. Treating letters of credit in a casual manner will remove the very level of security the exporter is seeking when selecting them as a method of payment.
To ensure that letters of credit are dealt with in a competent and professional manner it is important for companies to have an action plan or checklist when dealing with letter of credit trade. This should apply to both regular users and those who use letters of credit infrequently. Indeed it can be seen almost as more important for infrequent users to have these procedures in place due to their having less experience in dealing with these types of transactions. Many suggestions of how to deal with credits are given in Section 5 of this report. SITPRO also publish a set of three Letter of Credit Checklist and Guides for importers, exporters and export sales executives.
Whenever letters of credit and discrepancies are discussed the issue of training is nearly always raised. There is no getting away from the fact that in order to process letters of credit in a timely and accurate fashion staff must be adequately trained. In an ideal world this means both on the job training backed up by a formal training course or qualification. Formal training is available from a number of different organisations (see Appendix 2) either through attendance on courses or through distance learning methods.
Those companies who are dealing with letters of credit on an infrequent basis (and in some instances perhaps others who deal more often with letters of credit) may feel that it is not appropriate to have the expertise to deal with letters of credit in-house. In this case use may be made of outside expertise and experience for example their freight forwarder. This should be seen as a positive step taken to help ensure that the letter of credit process runs smoothly. However, using outside expertise does not preclude taking steps during contract negotiations to ensure that the credit is set up appropriately.
It is now recognised that electronic commerce can be used throughout the letter of credit chain. Indeed with effect from 1 April 2002 the ICC have introduced a supplement to rules for letters of credit (UCP500), which provides for electronic presentation of documents (eUCP). SITPRO consider that further work should be carried out to look at how far electronic letters of credit are used within international trade and whether their use reduces the number of discrepant documents causing rejection of credits. It is recommended that this work should not be carried out until at least 2003 to ensure that the new eUCP rules start to be widely used. This suggestion will be put to the SITPRO Board for further discussion and possible inclusion in future work programmes.
- Contents
- Executive Summary
- Section 1 - Introduction
- Section 2 - Letters of Credit - An Explanation
- Section 3 - Global Payment Patterns
- Section 4 - The Survey
- Section 5 - Demonstrated Best Practice
- Section 6 - Conclusions - Return to top of page
- Glossary of Commonly Used Terms in Documentary Credits
- Appendix 1 - List of Discrepancies and Frequency
- Appendix 2 - Organisations Providing Letter of Credit Training
- Appendix 3 - Checklist for Compiling Documents Under a Letter of Credit
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