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Finance Against Letters of Credit

Funding against an incoming letter of credit can be trickier than it ought to be in today's banking environment.    A documentary letter of credit (DLC) can only be cashed upon presentation of the required shipping documents and inspection reports (if needed).  Before goods ship, the DLC has potential value,  but it isn't fungible, or cashable YET.  Your supplier wants to be paid in order to produce and ship, but you won't be able to convert that DLC into cash until your supplier ships the product.  If you have received a non-transferable letter of credit in payment, you are going to need a bridging mechanism to pay your supplier to get your deal all the way home. 

Finance Using Letters of Credit

Many traders look for either a back to back letter of credit or a transferable letter of credit as a way of utilizing the incoming LC to pay the supplier.  In both cases, there can be issues.   

A transferable letter of credit may reveal the identity of the buyer to the seller, and vice versa.  For the trader in the middle, this factor may blow the whole deal especially if a consistent series of transactions between the two is expected. A back to back letter of credit poses a different problem. In this case, two different banks are likely to need to handle the documents, increasing the time needed to clear and the increased possibility of snags from one of the banks if everything isn't perfect. 

We're not psychic.  We may be able to assist you in your operations........but only if you tell us what you need.  

You're here now.  And we're here, virtually.  So take a moment to set a better business future in motion.  We can't schmooze you like we could if you walked into a shop, so we have to do it this way instead.  Did we make you feel welcome enough?

A Better Way to Finance with Letters of Credit

The simplest way to handle matters is with an authenticated payment instrument issued to the supplier by your designated receiving bank, based on supplier's submission of required shipping documents.  This is exactly the same process that the supplier would follow if you sent him a letter of credit. When you use an assignment of the proceeds from the letter of credit, you bypass duplicate sets of documents and streamline the process, with a lot more control over the transaction.

We Can Act as Your Deal Manager

We, along with Jigsaw's partner company, will do the following for you:

  • Review the various invoices and purchase orders 

  • Determine what bank might suit, based on LC origin, bank's experience in the country, and negotiating charges

  • Review and suggest language on draft incoming LC to speed up payment and remove possible snags, coordinating that with the PO's and PI's

  • Cause the negotiating bank to issue an authenticated payment instrument to supplier/supplier's bank, so that supplier is secure that he will receive payment upon presentation of documents.  Under this method, there is no need for transferable or back to back LC, the use of which can result in delays and complications

  • Manage the arrival/document processing of incoming issued LC at the designated bank

  • When LC is advised, have bank send formal payment letters to suppliers 

  • Manage docs with supplier, SGS, freight forwarder as needed, and prepare many of necessary docs

  • Collect all third party docs for simple submission to negotiating bank

  • Get bank response to docs within 48 hours, making necessary corrections if any;  objective is not to have corrections through proper preparation

  • Once bank verifies docs are clean, bank pays supplier, any other designees, and remaining funds sent to beneficiary

  • Provision of online doc tracking so that you can see banking dates, payment dates, copies of docs and courier tracking  for docs to the issuing bank

And that's just a taste.  We offer a turnkey solution for you, so if you'd rather strike deals and leave the letter of credit finance headaches to people with years of experience, usually with better knowledge than most bankers, then we just might have the answer to a question you hadn't even asked yet. Did we mention that we can provide this particular service for you worldwide?

Whether you're in North or South America, Europe, Asia or Africa, we can handle letters of credit and manage the process for you efficiently through our own global reach.

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