Letters of Credit Impact on Small and Medium Enterprises:

Small or Medium Enterprises (SMEs) account for 99% of businesses in the UK. There were over 5.7 million SMEs active in 2018. Letters of Credit can help alleviate some of the cash flow constraints stemming from delayed and long payment terms from end customers. Large international companies are often culprits for late payments to SMEs, which can often put small companies at financial strain, or even out of business.

What are the Benefits of Using a LC?

Risk and trust are one of the major challenges when it comes to trade, be that domestic or international. The specificity and legal weight of Letters of Credit are a big advantage, given that they are accepted and acknowledged by 175 countries, reduce the risk of doing business overseas, and provide transparent collaboration between unknown parties.

Finally, Letters of Credit provide better clarity on the transaction, as all of the goods or services supplied would be defined in detail. This provides additional comfort to the buyer as well as removing the possibility that the descriptions of the goods ordered are vastly different from what arrives.

Key advantages of Letter of Credit:

Avoids potential disputes overseas.

Some form of guarantee to a seller / supplier that they will get paid.

Flexibility and variability across different types of LCs.

Secure payment method endorsed by most major markets.

Risk of non-payment is taken by the banks rather than the buyer.

Often required by national border / exchange control agencies.

For further inquiries,

Jason Gavin

Email: jasongavin44@gmail.com

Telephone/WhatsApp: + 44 7452 390049

Twitter: @JasonGa58390383

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