Export Letter of Credit: Meaning, The Process, Features, And Benefits
If you have huge plans to start or build an export business globally, from your base at Dubai or somewhere else in UAE, then you need to focus on the features and functions of an export letter of credit. It is fundamentally a financial instrument issued by a banking institution that provides both the seller and the buyer the security to carry on with the intricate operations as have been mentioned in the trade deal.
The Process in A Nutshell
The processing of an export LC is actually very simple to understand. A specific bank checks the relevant documents of the buyer and also scrutinizes the trade deal. After that it, after consulting with an advising bank, issues the letter. The letter of credit is accounted to the terms and conditions of the contract between the buyer and the seller. The letter is issued to the seller. This completes the full circle of the process of issuance of an export LC in a completely legal framework.
Features of The Export LC
There are provisions for negotiation in the terms mentioned in the letter. Moreover, the dynamics of the payment can also be changed after discussing the issue with various stakeholders. A crucial feature of the process is an assessment of the documents at each stage. The issuing bank authority works in tandem with an advising bank that is also called a confirming bank. The buyer and the seller reside within the administrative network of both these banking entities.
Benefits of The Export LC
There are numerous practical benefits of the expert LC. The benefits accrue both to the buyer and the seller. Hence, it does not matter whether you are the buyer or the seller in an international trade deal; you are bound to receive benefits by getting involved in the processing of an export LC.
A Total Guarantee of Payment
If you are a seller, that is, exporting goods and services to a trading partner outside the UAE, then the payment for your products are guaranteed by the export LC. It often happens even before you start the shipment, helping you to further prosper your business.
Eliminating Risk
There is no space for any denial that international trading involves some risks in context of delivery of goods and receipt of their payments. But export LC cuts short the incidence of risk letting you to trade without any unnecessary glitches.