Session 2: How Letters of Credit Work
This session will walk participants through the steps in the life of a letter of credit, identifying pitfalls along the way. The instructor will review and illustrate fundamental principles using real-life examples, explaining how these principles apply to both commercial and standby letters of credit and how these two types differ. In particular, participants will learn why letters of credit might not get paid. Along the way, they will learn about standard and silent confirmation and about bank programs that provide payment in hours instead of weeks.
Letters of credit used in export sales (commercial L/Cs) are quite different from those companies are accustomed to using in domestic sales (standby L/Cs). The biggest difference is that export L/Cs are intended to be drawn on and thereby serve as the means of payment for goods shipped. The “rub” is that they tend to call for more documents, many of which are prepared by third parties. Export L/Cs are designed to serve as a reliable means of credit assurance and also an efficient means of payment. Yet 75% of the time the documents are noncompliant and it can take 3 to 6 weeks to get paid on a “sight” L/C (if at all). This session will provide participants with a detailed review of the mechanics of export L/Cs and how they are structured to assure fast payment. The discussion will then focus on the points at which the process tends to break down. Participants will learn about bank programs that provide payment in one or two days, even when documents are discrepant, how to avoid discrepancies (and nonpayment), and how and when to use “silent confirmations.”
Areas Covered in This Session:
- Export Credit Risks
- What Is a Letter of Credit?
- Mechanics and Principles of Letters of Credit
- Confirmed Letters of Credit
- Usance Letters of Credit
- Financing Letter of Credit Sales
- What to Ask for in a Letter of Credit (Creating an Instructions Form)
In-depth training will be provided by Buddy Baker: a nationally recognized trade finance expert with Fifth Third Bank’s International Division and Global Trade Risk Management Strategies based in Chicago. Click here to learn more about Buddy's Global Trade Risk Management Strategies LLC
Who is eligible for this training?
· Washington State community bankers and small businesses exporters
Why would a bank or company be interested in attending these seminars?
- The advantage of having a trained international finance expert gives a competitive edge to attract more clients and expand its services to existing customers
- Better understanding of payment options and awareness on risk mitigation
What is the cost of the Seminar?
· It’s $50 per session
· Each training includes materials and lunch
Where can I contact the organizer with any questions?
· Doug Kemper: 206-256-6127
· Zara Castillo: 206-256-6115
When & Where
Washington State Department of Commerce
Commerce’s Business Services Division stands at the ready to assist you in all respects. Our team of business experts can help you make business introductions, help you expand your markets through exporting and international trade and provide vital market intelligence to help you make informed business decisions.