Documentary Sale with Letter of Credit - Essay Example

The seller is afraid of nonpayment incidences while the buyer's goods delivered will not conform to the order’s conditions. Coupled with the above-mentioned fears, it is the fact that legal recourse will be expensive besides sometimes being extremely complex considering jurisdiction. Mainly, they ease trading modes besides eliminating fears, that parties might be having especially when their merchandises emanate from other diverse regions other than where they operate. The most occurring incidences regarding these letters not meeting the stated requirements are those of fraud, which this study intends to relate explicitly.

A documentary letter of credit usually takes place between three or more parties. They include the claimant who is the buyer or one importing, issuing bank being the importer's bank whereby the beneficiary may be the seller or exporter. This document may be electronically given the presented to a local bank of the owner’s choice willing to negotiate for it to negotiate for him or her. Bank mandated to give out the letter ensures it reaches that correspondent in the same region where the exporter might be operating. The correspondent assumes the role of advising because its responsibility is to inform the beneficiary that the letter has already been opened in his or her favor. Bank supposed to pay may deal with the beneficiary in terms of local currency though after the determination of proper currency. The correspondent in advising or settling payments may need to include its name in the letter when it imposes charging fees. By the completion of this procedure, the involved banks will settle their final dealings in an attempt to ensure they have served as necessitated.

Mainly, the issuing bank ensures it settles the pending dues for the customer after he or she presents to it the necessary papers. Hence, the letter acts as a document to the client prepared adequately by the bank acting on behalf on his or her behalf. The applicant bank agrees to accept drafts under the letter of credit if the client will strictly comply with the terms already in it. The beneficiary is requested to provide certain papers alongside the draft. Some of these embrace negotiable BOL, insurance papers, commercial invoices, drafts of a bill of exchange, other legal papers that indicate goods are ready for export, inspection certificates, and any other essentials. This way the issuing bank represents its customer. The use of a letter of credit has various advantages, especially for the client. He does not ship his or her merchandise until the involved banks have adequately ensured all required conditions are in line with what he or she needs. Documentary letters of credit play a significant role in international trade for it serves as a tool that makes the effecting of cross-border payment effortless.