Letter of credit and the banks

The collapse of the economies linked to the failure of the financial regulatory authorities

Banks impose unlawful charges over the letter of credit amount instead of applying fixed fees for issuing a letter of credit in the absence of credit risks

In order to expedite the process of receiving purchase orders from the buyer’s side and finalizing the sales promptly there are some preconditions that need to be completed. The purchasing party is always firm in its requirement to examine records of the Seller’s past transactions. They aim to verify the Seller’s prior experience in the specific line of businesses before considering any potential transactions. Buyer should always ask or request the Seller provide him or her with copies of pertinent documents related to the Seller’s past involvement in the sale and export of petroleum products. Let me explain why. First, I will now explain the rationale behind this request. The Buyer and sometimes its financier, on the buyer’s side, insist on reviewing the Seller’s past transactions and proof of products that are subject to sales negotiations. Their intention is to make sure whether the Seller possesses prior experience in conducting the particular business or not. Also, considering the standard practice of banks charging a commission fee ranging from 1% to 4% of the letter of credit for opening, it is necessary for the buyer and financing party to verify the existence of the product before proceeding with the transaction. This precautionary measure is taken to prevent unnecessary payment of the letter of credit fee to the bank, which can amount to 1% to 4% of the letter of credit, in the event that the product is not actually available. Under these circumstances, if the seller side provides copies of any relevant documents pertaining to the Seller’s previous transactions involving the sale and export of such specific products and the proof of products, the buyer will proceed further to sign the ICPO and open a Letter of Credit. Otherwise, the buyer probably will not take that risk and open a letter of credit for, the products that they are not sure about the existence of the products, and the seller who has no experience in this business. Because the amount equal to 1% to 4% of the letter of credit that will have to be paid to the bank just to open the letter of credit is a quite huge amount. Consequently, the proof of products and some documents showing the past experiences of a seller are vital in international sales and export transactions.