Where to Use an Export LC

An export LC is a type of letter of credit that is sent by the importer to the exporter's bank. The exporter will then have to fulfill the necessary terms and conditions stated in the document before he can receive his payment. It is a valuable tool that protects one against commercial risks.

The terms of an export LC are flexible and can be tailored to the exporter's needs, as long as they are fair for both parties. While there are many advantages to using an export LC, there are also disadvantages. For instance, the exporter stands to bear credit risks if the issuing institution defaults. This is why one should not get carried away and misuse the export LC. To minimize the risks involved, we have compiled a list of ideal situations that require you to use an export LC.

International Trade

This is one of the most common cases that prompt the use of an export LC. When dealing with international transactions, it is important to protect your business as much as you can. The risk of fraud is higher, so you need an export LC to mitigate the losses (if any) for both parties. The issuing bank serves as an unbiased and uninterested third party that only ensures that the requirements have been met.

Performance-Based Contracts

Not all transactions involve the buying and selling of goods. Sometimes, services might be needed and paid for. For example, an individual could pay a construction company to launch and finish a skyscraper project. In this case, an export LC will guarantee that, if the exporter (in this case, construction worker) fails to complete the project in the stipulated time, or fails to meet the agreed standard, the contract will be canceled and the importer will be compensated.

Improve Credibility

Having a letter of credit says a lot about your credibility. It means that you have a clean and impressive financial history and that you can be trusted. To put your business partner at ease, you can agree to an export LC and set your terms.

Faster Transactions

Financial products like expert LC help speed up business transactions between the importer and exporter, especially when they are worlds apart. So, if you need to be paid faster and also enjoy smooth transactions, an export LC will come in handy.

The Last Resort

An export LC should be your last resort of payment. If you understand that certain risks may come up and you'd like to avoid them, you can use the letter of credit. In this case, the bank acts as the guarantor.