Letters of credit in the construction industry - Revision history

Designing Buildings at 05:26, 13 August 2024

2024-08-13T05:26:32Z

← Older revision		Revision as of 05:26, 13 August 2024
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	* Revolving – these can be used to cover several transactions between the same buyer and seller.		* Revolving – these can be used to cover several transactions between the same buyer and seller.

−	= Related articles on Designing Buildings ~~Wiki~~ =	+	= Related articles on Designing Buildings =

	* 5 Essential Tips for the Import / Export Trade		* 5 Essential Tips for the Import / Export Trade
Line 52:		Line 52:
	* Brexit.		* Brexit.
	* Cash flow.		* Cash flow.
		+	* Customs guarantee.
	* Late payment.		* Late payment.
	* Parent company guarantee.		* Parent company guarantee.

Designing Buildings at 07:53, 17 February 2021

2021-02-17T07:53:20Z

← Older revision		Revision as of 07:53, 17 February 2021
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	* [https://www.gov.uk/guidance/letters-of-credit-for-importers-and-exporters Letters of credit for importers and exporters,] Gov.UK.		* [https://www.gov.uk/guidance/letters-of-credit-for-importers-and-exporters Letters of credit for importers and exporters,] Gov.UK.

−	[[Category:~~International~~]] [[Category:Client_procedures]] [[Category:Construction_management]] [[Category:Contracts_/_payment]]	+	[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Definitions]] [[Category:Client_procedures]] [[Category:Construction_management]] [[Category:Contracts_/_payment]]

Designing Buildings: moved Letter of credit to Letters of credit in the construction industry

2020-09-14T10:10:39Z

moved Letter of credit to Letters of credit in the construction industry

← Older revision

Revision as of 10:10, 14 September 2020

Designing Buildings at 10:20, 5 November 2019

2019-11-05T10:20:53Z

← Older revision		Revision as of 10:20, 5 November 2019
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−	\| [[File:Damages.jpg]]	+	\| [[File:Damages.jpg\|link=File:Damages.jpg]]
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	= Introduction =		= Introduction =

−	A ~~‘letter~~ of ~~credit’~~ is a financial document used to reduce risk in the import and export of goods: to give assurance both to importers that they will receive their goods and to exporters that they will receive payment. It is sometimes referred to as ~~’documentary credit’~~.	+	A letter of credit is a financial document used to reduce risk in the import and export of goods: to give assurance both to importers that they will receive their goods and to exporters that they will receive payment. It is sometimes referred to as 'documentary credit'.

−	For example, a contractor who has ordered curtain walling from Europe needs certainty that it will arrive by the due date, while the manufacturer wants assurance that they will be paid for the curtain walling that has been manufactured and shipped.	+	For example, a contractor who has ordered curtain walling from Europe needs certainty that it will arrive by the due date, while the manufacturer wants assurance that they will be paid for the curtain walling that has been manufactured and shipped. If this were not the case, imported goods previously ordered might never arrive and exported goods might not be paid for. Given there are usually large distances involved in such transactions, as well as different legal systems and language barriers, any such disputes could be difficult to resolve.
−		+
−	If this were not the case, imported goods previously ordered might never arrive and exported goods might not be paid for. Given there are usually large distances involved in such transactions, any such disputes could be difficult to resolve.	+

	= Benefits for sellers (exporters) of goods and services =		= Benefits for sellers (exporters) of goods and services =
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	= Benefits for buyers =		= Benefits for buyers =

−	A letter of credit gives the buyer (importer) assurance that the seller will honour their side of the bargain and provide documentary proof for it. A buyer usually arranges a letter of credit with their own bank – referred to as the ‘issuing bank’. Although they can be useful, importers should typically only use letters of credit at the insistence of exporters and/or they are required by national controls.	+	A letter of credit gives the buyer (importer) assurance that the seller will honour their side of the bargain and provide documentary proof for it. A buyer usually arranges a letter of credit with their own bank – referred to as the ‘issuing bank’. Although they can be useful, importers should typically only use letters of credit at the insistence of exporters and/or if they are required by national controls.

	= Cost and other drawbacks =		= Cost and other drawbacks =
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	= Government advice =		= Government advice =

−	The UK government advises exporters to think carefully ~~over~~ whether they should request a letter of credit from an overseas customer. It recommends asking questions such as:	+	The UK government advises exporters to think carefully about whether they should request a letter of credit from an overseas customer. It recommends asking questions such as:

	* Whether the country being exported to requires one.		* Whether the country being exported to requires one.
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	= Types of letter of credit =		= Types of letter of credit =

−	There are numerous types, and some are more secure than others, but the main ones are:	+	There are numerous types of letter of credit, and some are more secure than others, but the main ones are:

	* Irrevocable – cannot be changed or cancelled unless all parties agree.		* Irrevocable – cannot be changed or cancelled unless all parties agree.
	* Revocable – can be changed or cancelled by the bank at any time and for any reason. These provide less security than the irrevocable type.		* Revocable – can be changed or cancelled by the bank at any time and for any reason. These provide less security than the irrevocable type.
	* Confirmed – at the request of the seller, the seller’s bank usually checks whether the buyer’s letter of credit is valid; the seller may, for extra security, require the bank to ‘confirm’ the letter. By this act of confirmation, the sellers bank agrees to guarantee payment if the buyer’s (issuing) bank fails to honour it.		* Confirmed – at the request of the seller, the seller’s bank usually checks whether the buyer’s letter of credit is valid; the seller may, for extra security, require the bank to ‘confirm’ the letter. By this act of confirmation, the sellers bank agrees to guarantee payment if the buyer’s (issuing) bank fails to honour it.
−	* Unconfirmed – an unconfirmed letter of credit is not as secure as the confirmed type ~~(see above)~~.	+	* Unconfirmed – an unconfirmed letter of credit is not as secure as the confirmed type.
	* Transferable – can be passed on to another beneficiary (party receiving payment) eg, when intermediaries are involved.		* Transferable – can be passed on to another beneficiary (party receiving payment) eg, when intermediaries are involved.
	* Revolving – these can be used to cover several transactions between the same buyer and seller.		* Revolving – these can be used to cover several transactions between the same buyer and seller.
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	* 5 Essential Tips for the Import / Export Trade		* 5 Essential Tips for the Import / Export Trade
−	* ~~Accounting~~.	+	* Advance payment bond.
−	* ~~Brexit Topic Guide~~.	+	* Bonds and guarantees.
	* Brexit.		* Brexit.
−	* Budget.
	* Cash flow.		* Cash flow.
−	* ~~Commercial management~~.	+	* Late payment.
−	* ~~Company~~.	+	* Parent company guarantee.
−	* ~~European Union~~.	+	* Performance bonds.
−	* ~~Investment.~~	+	* Retention of title.
−	* Overcoming the challenges of ~~Brexit.~~	+	* Vesting certificate.
−	* Overheads.	+
−	* The commercial implications of Brexit.	+
−	* Turnover.	+
−	* Value added.	+
−	* Whole-life costs.	+
−	* ~~Yield~~.	+

	= External references =		= External references =

Editor: Created page with "{| | File:Damages.jpg |} = Introduction = A ‘letter of credit’ is a financial document used to reduce risk in the import and export of goods: to give assurance both to ..."

2019-10-21T17:53:15Z

Created page with "{| | File:Damages.jpg |} = Introduction = A ‘letter of credit’ is a financial document used to reduce risk in the import and export of goods: to give assurance both to ..."

New page

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| [[File:Damages.jpg]]
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= Introduction =

A ‘letter of credit’ is a financial document used to reduce risk in the import and export of goods: to give assurance both to importers that they will receive their goods and to exporters that they will receive payment. It is sometimes referred to as ’documentary credit’.

For example, a contractor who has ordered curtain walling from Europe needs certainty that it will arrive by the due date, while the manufacturer wants assurance that they will be paid for the curtain walling that has been manufactured and shipped.

If this were not the case, imported goods previously ordered might never arrive and exported goods might not be paid for. Given there are usually large distances involved in such transactions, any such disputes could be difficult to resolve.

= Benefits for sellers (exporters) of goods and services =

A letter of credit is a guarantee from a bank specifying that the seller (exporter) will receive a specified sum of money within a specified period as payment from a particular buyer. In return, the bank demands that specific terms are met, such as receiving certain documents as proof eg, shipping confirmation, etc. To receive payment, exporters must keep strictly to the terms of the letter, which normally requires providing documentary evidence that the goods supplied are exactly what they contracted to supply.

As long as the exporter meets all the terms and conditions, the letter of credit provides them with one of the most secure methods of payment. If, following issue of the letter of credit, the buyer does not pay the seller, the risk is then transferred from the seller to the bank.

= Benefits for buyers =

A letter of credit gives the buyer (importer) assurance that the seller will honour their side of the bargain and provide documentary proof for it. A buyer usually arranges a letter of credit with their own bank – referred to as the ‘issuing bank’. Although they can be useful, importers should typically only use letters of credit at the insistence of exporters and/or they are required by national controls.

= Cost and other drawbacks =

Letters of credit can result in higher costs – banks will charge for them and so they may not be justifiable in relation to the order’s value. Costly delays, bureaucracy and other administrative problems are also possible.

= Government advice =

The UK government advises exporters to think carefully over whether they should request a letter of credit from an overseas customer. It recommends asking questions such as:

* Whether the country being exported to requires one.
* Does the value of the order justify the associated bank charges and extra costs?
* Is the customer creditworthy and do they have a track record with the exporter?
* Is the country being exported to politically stable and a good international trading partner?
* Is it standard practice for exporters to use letters of credit when trading with that country, and/or in that particular commodity?
* Seek other advice and guidance – a bank may be able to advise on trading with the country.

= Types of letter of credit =

There are numerous types, and some are more secure than others, but the main ones are:

* Irrevocable – cannot be changed or cancelled unless all parties agree.
* Revocable – can be changed or cancelled by the bank at any time and for any reason. These provide less security than the irrevocable type.
* Confirmed – at the request of the seller, the seller’s bank usually checks whether the buyer’s letter of credit is valid; the seller may, for extra security, require the bank to ‘confirm’ the letter. By this act of confirmation, the sellers bank agrees to guarantee payment if the buyer’s (issuing) bank fails to honour it.
* Unconfirmed – an unconfirmed letter of credit is not as secure as the confirmed type (see above).
* Transferable – can be passed on to another beneficiary (party receiving payment) eg, when intermediaries are involved.
* Revolving – these can be used to cover several transactions between the same buyer and seller.

= Related articles on Designing Buildings Wiki =

* 5 Essential Tips for the Import / Export Trade
* Accounting.
* Brexit Topic Guide.
* Brexit.
* Budget.
* Cash flow.
* Commercial management.
* Company.
* European Union.
* Investment.
* Overcoming the challenges of Brexit.
* Overheads.
* The commercial implications of Brexit.
* Turnover.
* Value added.
* Whole-life costs.
* Yield.

= External references =

* [https://www.gov.uk/guidance/letters-of-credit-for-importers-and-exporters Letters of credit for importers and exporters,] Gov.UK.

[[Category:International]] [[Category:Client_procedures]] [[Category:Construction_management]] [[Category:Contracts_/_payment]]