Nobody is quite sure whether the current global downturn has reached its lowest point, or how long it will last. Businesses are adapting in many ways to the crisis in order to minimise risk, so it is logical that payment terms are being tightened until those green shoots we keep hearing about start to strengthen. In spite of what the media would have us believe, there are plenty of good news stories out there with some businesses enjoying their best years ever!

There has certainly been an increase in the use of Letters of Credit (LC) recently, so there is a need for a greater understanding as to how they work. LCs are one of the more secure ways of ensuring payment, as they represent a written undertaking from a buyer’s bank to a seller’s bank to pay an amount that has been agreed for goods or services. It is the responsibility of the buyer and seller to agree the terms on which the LC should be based, and for the seller to comply with the agreed documentary requirements. Because LCs can be both costly and complex, we advise that the buyer and seller should agree a simple template for each LC before the buyer approaches their bank (the ‘Opening’ or ‘Issuing’ Bank). It will save you both time and money!