Last month’s article in the series “How We Can Help You Become Successful in International Shipping Commerce” focused on the importance of understanding INCOTERMS in international shipping. This week we continue with the series and focus on another shipping issue that international shipping companies can help you with – letters of credit.
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So what is a letter of credit exactly? A letter of credit is a commonly used form of payment in international commerce. The letter of credit is issued by a buyer’s bank and guarantees payment to the seller.

When should you use a letter of credit in international shipping? In international shipping letters of credit are recommended when the cargo being shipped has a high value and/or the seller and buyer are establishing a new business relationship. Letters of credit are oftentimes used for customers engaged in heavy equipment shipping, commercial goods shipping, and project cargo.

What else should I know about letters of credit? The letter of credit specifies the terms and conditions that must be met before payment is made to the seller. The issuing bank (buyer’s bank) will send the letter of credit document to the seller’s bank (called the beneficiary bank) for review and approval. Under the most commonly used letter of credit, an irrevocable letter of credit, the issuing bank irrevocably agrees that payment will be made. The letter of credit usually stipulates the documents the seller must present to the bank. Upon approval of the required documents and all other conditions of the letter of credit are met, the issuing bank transfers payment to the seller’s bank.

One of the biggest hurdles for letters of credit is discrepancies. Discrepancies could count as errors in the bank presentation and this normally results in bank payment delays for the seller or in some cases non payment! Does your business struggle with letter of credit compliance issues? Do you have difficulties understanding the terms and conditions spelled out in the letter of credit? If you answered yes to one or both of the above questions then worry no more, K International is here to help you with your various international shipping needs!

When shipping with letter of credit you want to make sure you use a prestigious and reliable freight forwarder capable of handling the international shipping services required under a letter of credit. Still considering different overseas shipping companies to handle your letter of credit shipments? Look no further than K International, we have years of experience working with letters of credit in international shipping and can provide reliable references. Whether it is construction equipment shipping, container shipping, airfreight, commercial goods, or project cargo under letter of credit, we can help!