As an importer/exporter, you may sometimes need financing to be able to fill an order. In such a situation, you would need B2B lending. If you are an exporter, you will need export credit specifically. There are different types of it available.
One of the most popular options is a letter of credit or an LC. It is assurance or guarantee from a bank that a seller will get the payment that they are owed by a buyer within a specified window of time. It is given under strict terms from the bank. All export credit letters of credit are done following the guidelines of Uniform Customs and Practice of Documentary Credit of the International Chamber of Commerce.
Advantages of LCs to exporters
Exporters get a number of benefits from LCs. The greatest advantage is minimized credit risk. There is always a distance between an exporter and importer which can make determining the creditworthiness of a client difficult. An LC mitigates this risk because a buyer cannot refuse to make payment as expected by claiming that the supplied goods are not of the expected quality. Fraudulent buyers may try this to delay or hold payments. In the terms of an LC, refusing to pay by complaining about the quality of goods is not allowed. With this security, an exporter can pursue other opportunities.
Types of letters of credit
There are different types of letters of credit. The most common and safe ones are Irrevocable Letters of Credit. They can't be cancelled or altered by the issuing bank at any time and for any reason unless all the parties involved are in agreement. A revocable one can be altered by the issuing bank.
There are also confirmed and unconfirmed letters of credit. When a buyer organizes for an LC, it is usually with their own bank, also referred to as the issuing bank. The seller will usually also ask their bank to confirm the validity of an LC. If it valid, the bank will issue a letter of credit which is considered a guarantee of payment. A confirmed LC, therefore, means security, unlike an unconfirmed one.
There are also transferable letters of credit, standby letters of credit, revolving letters of credit and back-to-back letters of credit.
B2B Pay for you
Whichever form of B2B lending you choose, B2B Pay will be there to facilitate your payments. We will make them straightforward, simple and fast. We will also process your payments at the lowest cost possible. Contact us about opening your European virtual account and see your import/export business thrive.