An irrevocable Letter of Credit is also an often used payment method. It is often referred to an L/C. Letters of Credit are formal payment methods that offer a lot of protection to the parties.
Simply put, a letter of credit is a letter written by the importer's bank to the exporter. It verifies that the payment will be guaranteed when the bank is presented with the concrete documents (bill of lading, and freight documents). Most letters of credit are "irrevocable" once the importer has had them sent.
A letter of credit usually includes applicant (you, the importer), beneficiary (our I/E agent), opening bank, negotiating bank, specification and quantity of the goods, amount of money, loading port and destination port, shipment date, the validity date of the L/C, terms and conditions agreed by both the importer and seller, and the documents required by the importers (bill of lading, commercial invoice, packing list, insurance certificate, etc.)
The L/C payment procedure is usually as follows:
a. You (the importer) applies to open the L/C to us (the seller) through a bank who can open the L/C in your country.
b. The opening bank will inform The Bank of China that the L/C has been opened.
c. The Bank of China will inform us that the L/C has been established.
d. We'll check all the terms and conditions listed in the L/C. If all terms and conditions are acceptable, we'll arrange the shipment within the time specified in the L/C.
e. After the goods are loaded onto the ship without any damage, the captain will issue the clean bill of lading to us.
f. We will submit the clean bill of lading and other relevant documents to The Bank of China to gather the payment. Only with clean bill of lading can you claim the ownership of the goods.
g. The Bank of China will send the clean bill of lading and relevant documents to your bank (the opening bank).
h. The opening bank will inform you that all documents are received.
i. You will go to the bank to make the payment to get the clean bill of lading and relevan documents.
j. With all of these documents, you can clear the import Customs and pick up the goods after the goods arrive on the destination sea port.
L/C is used for the larger quantity order shipped by sea.
The typical L/C scenario takes 14-21 days to complete.
There is no payment method that is perfectly safe to both the importer and supplier at the same time. But, we still have got to do business, right? So, we hold it's crucial to develop a long-term relationship with our customers based on mutual trust.