Credit Problems

lending problems

A number of difficulties exist in using a letter of credit, but they are one of the most commonly used trading instruments. Top 5 problems with letters of credit Exports administrators, dispatch or financial personnel may be at fault for not having taken sufficient care of details when creating them. Keep in mind that the precision of L/C records and your ability to comprehend and comply with UCP 600 regulations are crucial to getting your money out! Watch out for bankers with a locally based documentary verification department and foreign trading professionals who are willing to make timely investments to get your bottom line.

Recently, I have learnt of many cases where unexperienced documentary auditors have found void mismatches and have been outvoted by executive bankers when they have been contested by the recipient. Keeping all your critical employees trained on a periodic basis and making sure you work with bankers and shippers who know your operation and are willing to work with you and not against you is critical.

Issues with letters of credit

Now it is hard to get tech auditors and it is doubtful whether small letters of credit are viable; it is doubtful whether they are 100% self-liquidating; there is more regulation related to commercial financing in general; more risks are imposed on some jurisdictions that are no longer manageable by banking; LCDs are now sometimes used for payments and not just seen as guarantees of payments; in many banking institutions in newly industrialising nations the LC is sometimes seen as a reversible tool.

UCP 600 does not always address this; LC does not always mirror the economic realities of today's markets; VPs sometimes tolerate L/Cs from purchasers without fully realizing the impact of expense and risks on the company; Challenging conditions can result in delay and resulting expense from requesting changes or additional documentation; employees cannot focus enough on detail when drafting documentation; information needs to be effectively passed on by all parties engaged in the processes; novice reviewers can create problems and delay the processes.

It is also important to bear in mind that for trade and export finance, a letter of credit is not the only way to ensure a successful trade or export financing operation.

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