Week 2 – Discussion 2
I need 250 words Initial Post and two replies of 75 words each. No plagiarism.
The text describes problems exporters have with letters of credit. Since letters of credit transactions are document-based, the slightest discrepancies between documents can snag a transaction. In 200 to 300 words, describe how an organization can mitigate one risk in writing a letter of credit. Be sure to respond to at least two of your classmates posts
Maxwell Takyi
Maxwell Takyi
Sunday30 Aug at 21:28
Manage discussion entry
Hello All,
As explained in the textbook, a letter of credit is a contractual agreement between the importer’s bank and the exporter. It is a payment method in which the importer’s bank promises to pay the exporter on behalf of the importer should the importer fail to pay. The importer’s bank will only pay if the exporter provides the documents as stated in the credit letter (David, 2013). Therefore, the slightest discrepancies in the documents will prevent the importer’s bank from making any payments, even though delivery has been made.
One means by which an organization can eliminate discrepancies in a letter of credit is for the importer to review very carefully the proforma invoice received from the exporter to gain a good grasp of the final cost (cost of goods, shipping, insurance, and so forth). A careful review is necessary because the information contained in the pro forma invoice is used by the importer’s bank to open the letter of credit. The pro forma invoice information must match all information outlined in the letter of credit to prevent any discrepancies (David, 2013). Therefore, ensuring that the information in both the proforma invoice and letter of credit matches is one means of mitigating some of the risk associated with a letter of credits.
Reference:
David, P. (2013).
International logistics: The management of international trade operations(4th ed.). Retrieved fromhttps://www.vitalsource.com/
Wen hao Li
Wen hao Li
Monday31 Aug at 1:43
Manage discussion entry
Week 2/Discussion 2,
Hello class,
According to the textbook, a letter of credit is document in which the importers bank essentially promises to pay the exporter if the importer does not pay (David, 2013, Pg. 229). The documents within a letter of credit determine whether the issuing bank will pay the exporter. Sellers often require the buyer to give a letter of credit, proving that the bank will pay the seller even if the buyer cannot fulfill the transaction. It is crucial to ensure care and time are provided in handling the documents because both parties do not want to have to do amendments or corrections.
The most minuscule of mistakes can require a new letter of credit to be produced or a delay by misspelled words or dates. Several steps take place in a transaction that involves a letter of credit. In the first few steps, the exporter provides the importer with a pro forma invoice, which details the terms of the transaction (David, 2013, Pg. 230). When the importer requests that the bank opens a letter of credit, the importer must guarantee that the information provided matches the pro forma invoice. The letter of credit goes through many review levels, such as through the exporters bank and then the exporter. An organization can mitigate risk by carefully reviewing all the necessary information that must go into the application to open a letter of credit.
References
David, P. (2013).International logistics: The management of international trade operations(4th ed.). Retrieved fromhttps://www.vitalsource.com/(Links to an external site.)
