The Letter-of-Credit (L/C) is almost universally used as an international payment arrangement because:

• Payment disputes are hard to resolve.

• The L/C provides a clear and impartial payment arrangement.

• The L/C, like a contract, cannot be changed unilaterally by one party.

• The seller is guaranteed payment upon satisfaction of the L/C terms.

Terms of the L/C you will receive from us:

• Payable at sight. We receive payment upon presentation of the documents to our bank demonstrating the goods have been shipped.

• Bank fees. Buyer pays all fees associated with the L/C.

• Shipping. Buyer pays for shipping, FOB our business.

• Insurance. Buyer pays for all the insurance costs.

• Receiving bank. The bank designated to receive the funds is our company bank, not a third bank.

• Buyer's bank. The buyer's bank must have a good rating.

Important facts about the L/C:

• Delays. The L/C is complex and takes time to set up, often up to 60 days.

• Amount. We set the minimum amount for a L/C at $10000 USD due to bank charges and administrative costs.

• Negotiation Fees. If the L/C we send you is modified the buyer's bank may charge for "negotiation".

• Other L/C fees. We charge a prorated fee for a L/C less than $25000 USD.

• Domestic L/C. We use the L/C within the USA for larger transactions and/or if the buyer's credit is unknown or poor.

• The L/C deals only in documents. Payment under a L/C is solely based on examination of documents, not on goods.

• Testing of Goods. The L/C does not accommodate the examination or testing of items before payment to the seller is made.

The L/C process in six steps:

1. The L/C terms are reviewed and agreed upon before the banks are formally contacted or the "Issuing Bank" (buyer's bank) generates the L/C.   Any negotiations as to L/C terms should be done at this stage.

2. Once the L/C terms are agreed upon the buyer to sends PC Systems the name of the Issuing Bank so that this bank can be "confirmed".   Confirming a bank means checking its credit worthiness.

3. Once the Issuing bank is confirmed PC Systems will email the buyer a form entitled "Sight Export Letter Of Credit Instructions to Buyer". The buyer takes this form to the Issuing bank and deposits the required funds as indicated in the proforma and L/C Instruction form.  

4. The issuing bank sends the L/C to the "Negotiating Bank" (seller's bank). The L/C is reviewed by PC Systems for conformity with the agreed upon terms in the proforma and L/C instructions. If there are any differences "negotiation" will take place and the process will be repeated. This costs money in "advise fees" as well as time.

5. After the L/C has been accepted, PC Systems has an agreed upon number of days to ship the items and present documents to the Negotiating Bank. These documents show shipment as per the L/C. If these documents are "clean" they are forwarded to the issuing bank.   "Clean" documents refer to absence of any significant error such as a missed date or description that does not match the L/C. Misspellings are usually not considered significant.

6. If the issuing bank finds the documents clean the buyer picks up the documents. This allows the buyer to pick up the shipment. When documents are picked up the issuing bank wires the funds to negotiating bank. PC Systems can then draw upon these funds. If the documents are not clean then the buyer is contacted as asked if he will accept the shipment anyway. If he/she refuses the goods may need to be shipped back to the seller. This situation can be avoided by extreme attention to detail.

Letters of Credit issued by most banks are subject to UCP 500 (1993), the Uniform Customs and Practice for Documentary Credits, which is a body of rules that most banks adhere to. The basic rule of a L/C is that all parties, including the buyer's and seller's banks, deal just with documents and not with goods, services and/or other performances which the documents may relate to (UCP 500 - Article 4). This means that banks make payments based on examination of documents, not the examination of goods. If you need to examine and/or test the goods before authorizing payment then the services of an independent testing laboratory and an escrow service need to employed, not a L/C.