Credit being safe?

June 23 2015

As one of the most commonly used in international trade settlement, a letter of credit has been deemed safe by many companies higher coefficient of settlement, but with the development of international trade, the payments are starting to become less “fly . ”
A company’s export business for the province well-known electronics manufacturers, buyers B and Spain signed a total value of approximately $ 660,000 in order for the letter of credit payment terms. A company shipped the goods after issuing bank to pay a single, issuing bank received notice of the existence of the document discrepancies. A company’s failure to receive payment, then commissioned Fujian ECIC intervene to recoup their losses, because the issuing bank claims about discrepancies in line with the provisions of UCP600, Fujian ECIC ordered to recover the focus to B Company. But B Company to quality of the goods on the grounds refuse to pay, but has not provided any evidence. Similar cases often continue to unfold.
With the development of international trade, we have found the credit are constantly toward alienation, not only the documents submitted to increasingly demanding, but also spawned a number of other risks such as the risk of discrepancies, the soft terms of risk, the risk of losing the right goods, banking irregularities risk and so, to some extent, it has become an important source of influence in international trade security. First, bank credit poor countries and regions, bank credit tend to “alienation” as the buyer of commercial credit, the issuing bank may be in violation of international conventions, picky “discrepancies” in the buyer’s behest, and as an excuse to escape payment obligations. Secondly, from a practical point of view, credit transactions require the beneficiary to deliver the documents of strict compliance with the letter of credit within the stipulated time, this requirement is more stringent for exporters. Exporters or due to time constraints, or because the level of business, including language comprehension limitations caused by the credit claim does not comply. According to statistics, about 60% -70% of the documents in the first time to pay a single protest who were due to the presence of discrepancies. Finally, if a letter of combining air, land, sea and land transport, 1/3 of the bill of lading and other self-register operation, exporters will face double the money the two air cargo risk.
So, how to prevent the credit risk it?
First, to prevent the risk of soft clause
Although bank credit transaction is the first payer, but in practice, due to certain constraints in terms of the evidence, so that the credit risk of not recovering the money still exists, that is, so-called “soft terms.” Letter of credit to pay for a single person, in order to prevent “soft terms” risk: First, try to require the use of the credit standard model International Chamber of Commerce, to prevent soft terms; the second is to try to ask to open credit terms should be concise, clear, the more complex terms of credit, the more we should be vigilant, there are ambiguous and do not understand, try to modify the requirements of the issuer; Third, pay attention importer of the issuing credit review, choose a good partner credit; Fourth, focus on training trial single persons, to identify in advance the soft terms.
Second, the clever use of “letters of credit extended to cover the buyer risk” security risk
“Letters of credit extended to cover the buyer risk” is a way of export credit insurance underwriting. Exporters in the insured under the premise, if the issuing bank raised encountered discrepancies protest, in may require the buyer to obtain payment of rights, according to the agreed terms of the policy the insurer underwriting risk buyer. Specifically, prior to the issuing bank as presented discrepancies, export enterprises already found discrepancies and get the buyer a written commitment to accept the discrepancy; or though the issuing bank to protest the discrepancy, but the buyer of the goods have been put away and unreasonable refuse to pay, may be included “under the letter of credit extended to cover buyer risks” coverage. Fortunately, in the case of this article A company insured export credit insurance, the credit risk of the issuing bank and the buyer’s credit risk while incorporating insurance coverage only to avoid losses.