1. Buyer & Seller negotiate terms of the contract for the Product

Financial considerations

Seller:

• Name and address of the Buyer’s bank

• Status enquiry on the Buyer (Strength to hold a Letter of Credit)

• Confirm the Buyers Bank, verify strength of institution

• Currency exchange rate fluctuation

• Risk of non-payment by buyer’s bank due to country risk

Buyer:

Buyer will need to request a specific bank facility for Documentary Letters of Credit before any instructions can be issued. In assessing the level of facilities required, you will need to consider:

• The anticipated turnover. The facility will need to cover the total value of LCs the Buyer expects to have outstanding at any one time

• The Buyer’s maximum potential period of liability. This includes both the maximum validity period of the LC and the maximum term of the contract. The Buyer may need to allow the Seller some ‘lead time’ in order to organize the goods ready for transportation

To keep the costs of the transaction down, the Buyer should keep the validity period and any extended credit terms as short as possible, thus reducing the overall level of facilities required.

Supply Considerations

• Delivery periods on goods

• Delays with particular goods (eg. through logistic delays, such as loading, port space etc)

• Pre-shipment inspection.

Shipping Considerations

• Methods of transport available, direct or indirect

• Frequency of departures

• Approximate costs of alternative methods/routes

• Type of packing

• Correct Incoterms according to contract/transport mode.

• Optimum delivery point, ie. Transported from where to where?

• Goods insurance

• Delays for consular work or inspection formalities.

Agreeing Terms of Letter of Credit

To reduce unnecessary costs and delays in amending the Letter of Credit after it has been established, we strongly recommend that the Seller send the Buyer a template of the terms and conditions that they wish to be included.

 

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