If you have been international business for a long period you will know that trust is earned not given especially in dealing with suppliers for the first time. If you trust people easily and you do conduct business with companies in other countries based on trust, you may regret your actions when you lose your money to scam artists. However, a letter of credit is a financial instrument that reduces your chances of doing business with scams.

When you conduct business on an international level, there are some advantages and disadvantages. However, one of the disadvantages concerns trust between both parties. More so, there are times when you have to go through a number of facilitators which makes it even harder for you to know whom to believe or who you will hold responsible if something should go wrong.

For example, it may be hard for you to know if the company can be taken at their word and if they will send you the goods at the agreed time. In fact, you may not be sure that they will not disappear into thin air once you pay them upfront. Conversely, they may not be sure that they have any chance of receiving the payment in good time or at all if they send you the goods upfront.

If a business transaction gets to this stage, it almost always results in a stalemate in which there is usually know way forward. All the movement that you may see will be on a spot and without any meaningful direction towards the closing of the deal. A situation like this is not usually beneficial to businesses especially if they do not have alternative plans.

Moreover, a letter of credit often saves the day and helps the two parties to avoid what could result into a stalemate. The financial instrument makes it possible for both parties to show their commitment to the success of the deal. The best part is that the document will be issued by the bank of the buyer for the bank of the seller to confirm.

One of the points that make it beneficial is that it shows a proof of ability and willingness to pay on the part of the buyer. There is no bank that will issue this instrument if the client does not have the capacity for the required funds. This is due to the fact that the bank is invariably claiming to be in possession of the funds and that it will pay seller once it issues the instrument.

Conversely, this financial instrument makes it possible for the buyer to be sure of the availability of the goods before paying for them. This is due to the fact that the bank will only issue payment when it sights and confirm the shipping of the goods from the seller. In fact, the bank may not release the funds until the buyer is in possession of the goods.

One of the things that make the letter of credit very relevant in international business is that it is passed between the banks of the buyer and the seller. Except for when the document is being drafted or if there is a dispute, the two parties may not set their eyes on the document until the end of the deal. This ensures that the integrity of the document is not compromised in any way by either of the parties.

Accutrac Capital Solutions offers factoring and accounts receivable solutions to help business structure their financing.

Accutrac Capital Solutions offers factoring and accounts receivable solutions to help business structure their financing.
http://www.accutraccapital.com/

Author Bio: Accutrac Capital Solutions offers factoring and accounts receivable solutions to help business structure their financing.

Category: Advice
Keywords: finance,business,accounting,factoring,profit,cost,credit,debt