Monday, September 8, 2014

Make Your Work Faster With A Letter Of Credit

By Kerri Stout


At times, you may need a bit of extra money for something. A Letter of Credit is normally used when buying and selling with different organizations overseas. In some cases these are used domestically as well. Banks are usually the ones that will issue this letter to sellers promising that the buyer will pay as long as all agreements made between them are kept.

The first step for any transaction to take place is for the buyer and seller to make a deal. They will both need to agree on a price as well and quantity and how these goods will be transported. It is normally the seller that will ask the buyer to use a LOC if domestic.

A Commercial one of these is made specifically for businesses as some do not always have capital to buy machinery on hand. The seller will need to be promised by the buyer that the funds will be paid sooner rather than later. This is when the bank steps in to help out. In the letter it simply states that the buyer is allowed to borrow from the bank of a certain amount and that they will be able to payback all monies as stated in the repayment term.

Another difference is factors of production. This is the starting point of making a product, the input to the finishing point of a product or output. It is generally referred to as the input-output relationship. There are three factors of production which are land, labor and capital. Land consists of all natural resources. These are all different locations as well as mineral deposits which are important for making different goods. In order to make things simpler sometimes land and capital are combined.

In order for this to be supplied details of how much the payment will be as well as the name and address of the seller needs to be added. The exact time it will be transported or shipped as well as how this will be done. The country of docking is also very important. All of these will need to be correct as this is a binding document.

A Commercial Invoice is also used in foreign trade. This is provided by the corporation that is exporting a product across international borders. Some information will be needed to ensure that this is legal such as the names of both parties and what kinds of goods are being shipped. The country that manufactured the product and the Harmonized Systems codes will need to be clearly stated.

For the amount to be paid out there are requirements that need to be met first. Some of them will include having the goods inspected before transported and which ports will be used, this should already have been noted in the letter. What kind of method will be used to get the goods to the buyer and are all the documents on hand.

If by some chance the ship carrying the goods never makes it to port, the seller will still get the money as the bank has now made a promise to them that payment will be made no matter what. The Credit Letter is a binding document that no one should try and bypass. It is there for the buyer as well as the seller for their peace of mind.




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