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Letter of Credit

Importing goods internationally can have numerous rewards for businesses in the UK. Although companies can benefit from lower prices and a greater selection of products to choose from, importing from overseas is not without its risks.

While most international transactions are completed without any incidents, sometimes, things don’t always run as smoothly as planned.
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In some cases the business responsible for exporting the goods may ship the items and never receive payment, and in others, the importing company may not receive the items they’ve already paid for. Disputes can be difficult to resolve, particularly when distance is a factor.

A Letter of Credit can help to reduce the risks by guaranteeing to the seller that they will be paid, providing the seller places the goods on board the form of transport selected, and provides all relevant documents as prescribed by the Letter of Credit to their selected bank.

At Aldermore, we can help both buyers and sellers by issuing a Letter of Credit when requested by the buyer. This will be sent directly to the seller’s bank in order to guarantee that payment will be made for a stated sum within a prescribed time, to ensure the buyer’s trade cycle can be met and deliveries can be made on time to the buyer’s customers. Payment will only be expended to the seller once the bank is satisfied all the documents conform to the Letter of Credit in full- which theoretically protects the Buyer.

A Letter of Credit is a very effective payment instrument that provides the seller with the confidence to start production, and/ or place goods in control of the buyer without extending the buyer credit terms. The payment of the goods rests within the issuing bank that will transfer funds irrevocably if the documents supplied by the seller comply in full with the Letter of Credit.  The other notable benefit to the seller is that they can sometimes use the Letter of Credit to obtain a form of finance from their own bank- such as finance to purchase raw materials for production, in order to fulfil the sale.

The type of payment instrument Aldermore can offer the buyer depends entirely on the buyer’s relationship with the seller. Aldermore can offer a Supplier Undertaking (recognised under English law) which works in a similar way to a Letter or Credit- save the fact the document is agreed between Aldermore, the seller and buyer directly.

The final payment instrument that Aldermore can provide is a TT Payment which based on a payment on the back of receiving documents (usually including the seller’s Commercial Invoice, Packing List, and a stamped and signed goods in transit document). This usually means there is a trusting relationship between seller and buyer where goods are loaded and placed on the chosen form of transport without a payment being made. This usually happens when there is a long- standing trading relationship between the parties.

To talk about your import plans just contact one of our expert team today.

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