General

Domestic exporters export goods worth tens of millions or even billions of yuan, and the payment method for contract signing is T/T, with most of them being post T/T. After shipment, they suffer from breach of contract and cannot recover the payment, while cross-border rights protection takes a long and time-consuming time and effort, ultimately facing the embarrassing situation of winning a lawsuit but not getting back the real gold and silver. In recent years, such "bloody" cases have not been uncommon. The biggest risk in international trade for sellers is secure payment, and there is nothing else. Whether the payment is safe or not, at the beginning of the contract formulation, the risk level was roughly determined when selecting the payment method.

From the perspective of being a domestic exporter, I would like to discuss with you not only the need to correct the name of the letter of credit, but also to remind the exporter multiple times to carefully choose the payment method!

Exploring your opponent's credit status through payment methods

In international trade collection, the common ones are T/T (telegraphic transfer), LC (letter of credit), and DA/DP (collection). I have contact with all the payment methods mentioned above, with LC being the most common. However, from the perspective of many Chinese exporters currently in contact, T/T is more easily accepted and is most commonly used in practice, due to its simple and convenient operation. Everyone maintains a cautious attitude towards unfamiliar methods. However, many of the advantages of LC are not well understood by most international trade exporters.

For example, using international trade payment methods can provide a preliminary understanding of the credit status of the counterparty. When signing the contract, we proposed that the payment method should be LC at sight; Your opponent says it's okay, which means: 1. He has a credit limit in the bank (which may require collateral or other guarantees); 2. When he opens a letter of credit, he will pay a deposit of 10-20% or even higher, indicating that he has the willingness to pay and has certain strength. I believe that customers who can accept letter of credit payment methods have a clear credit advantage compared to customers who only accept D/P, D/A with commercial reputation as endorsement, or customers who only accept T/T.

For the exporter, receiving the certificate only requires a receiving account at the bank, so for you, with the participation of multiple parties such as customer reputation and bank reputation, isn't this a much better payment method than T/T, D/A, and D/P?

It is not unimaginably difficult to prepare and submit documents according to the requirements of the letter of credit

Many exporters are intimidated by the complex process of letter of credit because they are not familiar with it. In fact, this is a misconception. As exporters, waiting for the letter of credit to be received and the documents to be presented seriously is enough. Creating a set of documents that meet the requirements of the letter of credit is not as difficult as imagined.

For exporters who have been using T/T payment for years, in their imagination, if they do not pay attention to the discrepancies in the documents, it will lead to the payment being refused and everything will be destroyed. How many document clerks in enterprises have such psychological qualities? In fact, the difficulty of submitting documents can be completely controlled. When both parties sign the contract, the exporter can attach a letter of credit application as a template and make it a part of the contract, requiring the other party to open the letter of credit as required; You can also require the other party to review before opening the letter of credit, and if there is a difficulty in submitting documents and strict conditions, require them to make modifications.

In international trade practice, we require that the list of documents to be presented under a letter of credit be as simple as possible, and that most of the documents to be presented be directly issued by us (it is difficult for us to control the accuracy and compliance of third-party documents). For example, the certificate of origin can be issued by the Chamber of Commerce, the local Council for the Promotion of International Trade, or directly by the exporter. Therefore, we require the other party to accept the certificate of origin issued by us when issuing the certificate. Another tip is to ask your issuing party to include a point in the additional clause when opening the letter of credit. Spelling errors are not considered discrepancies, and in practice, many situations that may result in discrepancies can also be avoided.

In addition, the receiving bank usually reviews the documents again before submitting them, indicating possible discrepancies, which greatly increases the accuracy of the submission.

What are the bank charges for presenting documents under a letter of credit?

Generally speaking, banks will have standard fees. Notification fee, which may range from one hundred to several hundred yuan (usually two hundred yuan); The document review fee refers to the process of presenting and sending documents through the bank for the letter of credit. The bank staff will assist you in reviewing the documents to avoid being refused payment due to discrepancies in the documents; In addition, there may also be postage (several hundred RMB) and telegram fees, which are generally not significant.

The specific proportions and fees mentioned above are subject to the standards of each bank and are for reference only. If the collection amount is too small, there is no need to use a letter of credit for payment.

Refused payment, the original offense is not a discrepancy in the letter of credit

Is it necessary for the bank to refuse payment when there are discrepancies in the exporter's presentation? Not really. When your seller (i.e. the issuer) is willing to accept discrepancies, the payment can still proceed smoothly. If payment is refused due to discrepancies, the underlying business logic may not be due to the documents themselves, but more likely due to issues with the transaction itself, such as sudden changes in the market price of the goods, significant price reductions, or changes in customer purchasing intention and no longer wanting the goods. Some may request price reductions based on discrepancies.

Imagine when the epidemic first broke out and there was an urgent shortage of masks, if you handed in a batch of masks, even if there were discrepancies in the documents, would the other party refuse to pay?

For those who are worried about document errors, it is more important to measure the variables in the transaction business logic of your product and whether there is a risk of rejection at the beginning of the transaction. Of course, when goods suddenly face market changes and sharp price reductions, this risk will become less controllable.

A clever move to convert a usance letter of credit into a sight letter of credit, a letter of credit financing that most people do not know about

Customers who originally only accepted post T/T may be willing to accept a usance letter of credit, but you think the risk is quite high, after all, it is safe to keep the money in the bag. I suggest you consult the bank, which usually has several financing methods, such as Forfaiting. For the exporter, choosing Forfaiting means that the accounts receivable have been collected in advance, and whether the other party will pay later has nothing to do with the exporter. In addition to Forfaiting, there is another kind of recourse, which can choose to do export documentary bills. Of course, several financing methods will incur certain bank financing costs, and exporters can compare and choose according to their actual needs.

Therefore, as long as you are willing to pay a certain cost, a usance letter of credit can have the effect of receiving payment at sight.