What is export letter of credit advice?

A method of payment commonly used in international trade transactions, whereby the advising bank (TD Bank) facilitates payment to the exporter – provided the exporter complies with the terms and conditions of the letter of credit.

What are the two negatives associated with a letter of credit?

Disadvantages of a letter of credit: It is expensive: Both exporters and importers have to pay high fees when choosing the letter of credit as a payment option. It is difficult: Letters of credit requires experienced stuff who possess certain amount of trade finance knowledge.

Why is LC advising needed?

An ‘advising bank (also known as a notifying bank) advises a beneficiary (exporter) that a letter of credit (L/C) opened by an issuing bank for an applicant (importer) is available. An advising bank’s responsibility is to authenticate the letter of credit issued by the issuer to avoid fraud.

Why would an exporter insist on a confirmed letter of credit?

Exporters should consider getting confirmed LCs if they are concerned about the credit standing of the foreign bank or when they are operating in a high-risk market, where political upheaval, economic collapse, devaluation or exchange controls could put the payment at risk.

Is LC safe?

As you know, letter of credit is a safe mode of payment commonly for any business especially in international business also. Because, letter of credit is opened by your buyer’s bank to the seller’s bank, mentioning beneficiary of LC as you (seller).

What do you mean by export credit?

Export credits are government financial support, direct financing, guarantees, insurance or interest rate support provided to foreign buyers to assist in the financing of the purchase of goods from national exporters.

What are the advantages and disadvantages of using a letter of credit for the exporter?

It transfers the credit-worthiness from the exporter or buyer to the issuing bank. The importer can do any number of transactions at the same time when he is backed by an established and larger institution. A letter of credit is safer for the exporter in case the importer goes bankrupt.

What are the risks of letter of credit?

In a letter of credit transaction, main risk factors for the applicants are non-delivery, goods received with inferior quality, exchange rate risk and the issuing bank’s bankruptcy risk.

What is export LC?

Export Letters of Credit are financial instruments issued by banks that represents the commitment of the bank on behalf of an importer that guarantees payment will be made to the beneficiary (exporter) provided the terms and conditions specified in the Letter of Credit have been met.

What is the difference between a confirmed LC and an advised LC?

The LC is sent by the issuing bank to the advising bank. The latter is generally based in the exporter’s country and may even be the exporter’s bank. The advising bank (confirming bank) verifies the authenticity of the LC and forwards it to the exporter.

What is the disadvantage of letter of credit?

Disadvantages of a letter of credit: Expensive, tedious and time consuming in terms of absolute cost, working capital, and credit line usage. Additional need for security and collateral to satisfy bank’s coverage terms for the buyer.