Trade Financing

Letter of Credit

A letter of credit (LC) is a payment method that substitutes the credit-worthiness of a bank for that of a buyer. The buyer applies to a bank for the LC. Once the letter of credit is confirmed by a U.S. bank, it virtually eliminates the supplier's commercial credit risk. A letter of credit also protects the buyer, because a bank cannot pay the supplier until the supplier presents documents that comply fully with the terms and conditions of the letter of credit.

CocoCommerce supports the use of letters of credit. The buyer simply completes and on-line form, which is then either, faxed, e-mailed or transmitted to the buyer or the buyer's bank. The form has been created using SWIFT MT700 message types, which can be easily processed by the buyer and eventually the buyer's bank to complete the letter of credit application.

Documentary collection is equivalent to COD (cash on delivery) or payment by check. The buyer cannot obtain title to a shipment until it reaches its final destination and is paid for. A bank cover letter is generated by the supplier's bank that accompanies the supplier's shipping documents (purchase order, invoice, bill of lading, shipper's letter of instruction, export license and certificate of origin) to the buyer's overseas bank. The cover letter instructs the buyer's bank on how to remit the funds once received from the buyer and also provides instructions to the bank on when to release the title documents to the buyer, i.e., against payment or against acceptance of a time draft. It may also include information about which party is paying for the charges and provides a channel for the foreign bank to send information back to the buyer if necessary.

CocoCommerce allows the buyer to use his bank to process and complete the documentary collection process. The buyer simply completes and on-line form, which is then either, faxed, e-mailed or transmitted to the buyer or the buyer's bank. This information is forwarded to the supplier and supplier's bank with the buyer's terms and conditions of payment.