Risks in the Payment of Documentary Credit

The payment of the letter of credit can be done in three ways:

Letter of credit can be paid with cash, either by the issuing bank or the correspondent bank. It may also be paid through the adoption of an effect from a correspondent bank or the issuing bank. The third form is the deferral without support for differences in exchange rates.

Once the credit have been submitted and accepted, the exporter shall submit allDocumentation which proves that the shipment was made after the letter of credit. This bank is this information to the buyer. The bank go to the payment of the goods, if the transaction and the shipment after what had dictated the letter of credit ready.

There are some risks that make the financial institutions and importers in the use of letter of credit.

Containing a few letters of credit underRisks. One is the meaning of the complications that can further the documents, and another is the danger of not receive a payment.

The first risk has to do with decryption. Documentary risks to discrepancies between what actually arrive at the port or airport, and what can be made to point the letter of credit to be related. The importer will receive risk, the products of a quality different from, as was expected. Fraudulent transactions and errors in the decryption of the documents can alsoare mentioned as possible risks.

There is a verification process that the issuing bank to the validity of the program and know the product performs. If there is an error, the bank should it get to it right there and takes responsibility for verifying that the documents are correct.

Banks at risk of default by the importer.

The correspondent bank has paid the seller, does not threaten reimbursed by the client (the banker of thethe importer). It can also, for example, have difficulties with the broadcast from the country of the seller to the buyer or the risk of insolvency of the importer.

The banker of the importer could not be reimbursed by the client in any case, if the precaution of blocking the funds. Added to this risk the possibility of exchange rate risk comes when a hedge was not planned.

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