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FEATURED ARTICLE

GETTING TO GRIPS WITH
LETTERS OF CREDIT

© By Roger Kreitman, Principal Consultant Mr. Roger Kreitman the author of this article is the Principal Consultant to Mantissa, an e-learning company specialising in export and trade finance topics. Mantissa's computer based training and e-learning is particular suitable for busy export teams, because of its convenience. Staff can work through the programme at times that suit them, and do not have to leave the office to attend a training venue that may be a long way off. Training can be taken in short spells of an hour or two, and can be repeated if necessary if skills need to be brushed up. Please do scroll down to the bottom of the page for links to the programme.

DISCLAIMER: Mr. Roger Kreitman is not a member of AFRICABIZ editorial board. This is a featured article published by AFRICABIZ on behalf of the author - July 23, 2000 -.Views and opinions expressed are Kreitman's.

In today's uncertain economic climate, letters of credit remain an essential tool for the exporter to less-developed and emerging markets. But as every export manager knows, the achievement of a smooth letter of credit transaction requires attention to detail and a thorough knowledge of the subject.

Industry statistics consistently show that between 50% and 70% of documentary presentations under letters of credit will be rejected by the banks in the first instance. At best, the exporter's cashflow will be impaired, management time will be taken up in resolving the problem and further costs will be incurred. And in some instances there will be a much more serious outcome - non-payment and/or loss of the goods.

An example of what can go wrong. Typical terms of trade such as CIF or CIP will have the exporter arrange carriage and insurance, building these costs into the export quotation. But occasionally the importer will want to take care of this, and so suggests using an Incoterm such as FCA or EXW.

If a letter of credit is being used, what is the problem here? You may want to stop here and think about this before reading on!

The risk is that by giving up control of the transport process, the exporter is creating an opportunity for an unscrupulous importer to get out of the transaction. The letter of credit will typically call for a transport document specifying a date and perhaps vessel name. But suppose that the importer fails to make transport arrangements with the carrier - or makes these arrangements and then later cancels them. The exporter is now unable to produce the required transport document, and the letter of credit is cannot be used!

Mantissa is an e-learning development company based in the UK. We have been working with banks such as Barclays, ANZ, Westpac, Standard Chartered and HSBC, and corporates such as Mitsubishi and DuPont, on self-study training packages on letters of credit, collections and other aspects of trade finance such as export credit insurance and factoring.

For further free information on letter of credit processes, follow this link

We have a portfolio of off-the-shelf training products

And also operate an on-line bulletin board for trade finance issues

CONTACT DETAILS

Roger Kreitman
Principal Consultant
Mantissa Limited London SE3 9RD, UK

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