A Letter of Credit is a document issued by a bank at the request of its customer promising to pay the exporter for the goods and services provided that the exporter provides all the documents as stated in the terms and conditions. To the exporter a letter of credit guarantees payment and reduces production risk if the buyer has a change of his order. It ensures that buyers cannot refuse to pay due to complain raised over the goods. It also provides a chance to get financing incase of delayed payment.
The importer can structure their payment plan, it helps confirm the shipment of the goods, helps them reduce pre-payment, it as well ensures that the exporter delivers exactly what the importer required it also creates confidence for bigger transactions in future. A bill of exchange is a document that acts as the evidence of a debt and informs the importer to pay the exporter a certain fixed sum of money at a certain specific time.
They act as a guarantee that goods of certain stated specifications have been shipped and that and that that require payment. The Export-Import Bank of United States of America helps in financing sales of goods and services by proving guarantee of working capital loans, it helps crate jobs through export of goods, the bank guarantees the repayment of loans to foreign purchasers, it also provides credit insurance for U. S. exporters against.
The disadvantage of the Export-Import Bank is that for it to support the products at least 50 percent of them must be from U. S and they should not have any negative effect to the economy. It also does not offer help to importers outside U. S. In conclusion, the letter of credit, the bill of exchange and the Export-Import Bank are very important for the import-Export business to prosper not only in U. S but also any where in the world.