Contact Us Today!
File management for letter of credit

Definition of Letters of credit

“Letters of credit are a guarantee from a financial provider that they will make a payment to a seller, once certain criteria are met. Letters of credit are used to cement trade relationships and minimise risk, particularly when trading internationally.”

Letters of credit can help you forge strong relationships with suppliers, and ensure that trust is established quickly. Post-recession, suppliers are more cautious about offering credit to buyers and, particularly if you are trading internationally, there can be a funding gap between receiving goods and being able to send full payment.

That’s where letters of credit can be helpful as a trade finance tool, which establishes better relationships and enables you to trade freely with less concerns about payment times or creditworthiness.

How letters of credit work

Normally a decision to offer a line of credit will be based on an assessment of your ability to pay.  Once a  line of credit has been agreed with you, letters of credit will be on the basis of each individual transaction. If you have agreed a sale with another party, lenders will need to understand the terms that need to be fulfilled before the seller can receive full payment, and document these in a ‘letter of credit’.  Essentially, this guarantees that once the documented terms have been fulfilled, the seller will be paid, so they are relying on a lender’s creditworthiness rather than yours.

Why use letters of credit?

It’s not easy to build trust quickly between buyers and suppliers, especially when you trade internationally, but in today’s globally connected world it is essential to have good trade relationships. Letters of credit build mutual trust, allow suppliers to extend more credit to buyers and instill faith in a supplier’s ability to fulfil a contract.

The recipient of a letter of credit is placing trust in the finance provider that has issued it, rather than the buyer, which is useful for young companies, with a less than solid trading history, who may otherwise struggle to negotiate satisfactory credit terms. And the flipside is that if you are buying goods from overseas, a letter of credit can give you an added layer of security if the supplier fails to deliver the goods as specified.

Letters of credit offer an extra level of security when forging supplier relationships, in the UK or overseas. Some of the solutions we have provided include:

  • Letters of credit for wholesalers

Contact us today to find out if we can provide the cash injection that you need to put your ambitions into practice.

Our Latest Blogs

  • Construction Finance: Funding Challenges & Solutions

    Securing mainstream construction finance was never a simple enterprise, but it’s actually getting harder. This is especially true in the UK, where scrutiny from lenders has intensified over recent years, making it trickier and more time-consuming than ever for construction firms - even those with a healthy order book and a history of sound financial conduct - to secure the finance they need to grow.

  • Engineering Finance: Which Funding Option Is Right For Your Business?

    The success of your engineering business often comes down to getting the right funding at the right time. Should you invest in sales or technology? Have you identified new products or new economic territories? What are your funding options and how should you be using them?

    UK engineering firms are continually praised for their engineering excellence and there is a strong tradition to maintain. Current engineering feats like Crossrail, Leeds’ new £45m flood alleviation scheme, the new Forth road bridge and the Olympic Stadium show that British engineering ability is still as innovative today as it was in the time of Brunel.

    But it isn’t without its difficulties and finding appropriate finance is often at the very heart of meaningful progression and innovation.

    There is a real need for flexible finance to react to the changing market conditions, which includes the current uncertainty of an EU trade deal as well as the opening up of other overseas markets.

  • 8 Ways Unsecured Loans Can Help Your Construction Business Thrive

    The importance of finance within the construction industry cannot be understated. Not least because it is the most competitive and payment-delayed industry in the UK. Understanding how the financial challenges affect your business is just the start.

  • What Is Commercial Property Finance and Should You Invest?

    There aren’t many cash buyers when it comes to commercial property development. Anyone involved in this sector usually requires large-scale finance for their projects. Are you looking to develop a commercial project and if so should you even be looking to invest in property development?

    If you’d like to understand whether you want to invest in commercial property, you need a clear distinction on what a commercial property is, how it will be developed and whether you can afford to purchase it. Then, you need to consider whether taking commercial development finance is right for you and if the economic forecast makes it a good time to invest.

Hot from Twitter

An £85,000 funding boost provided by Access Finance has helped Peters Department Store in Huddersfield, by revitalising their brand and refitting their new premises. Find out more at bit.ly/2zJPSlB pic.twitter.com/hc9C…

About 15 hours ago from Access Commercial's Twitter via HubSpot · reply · retweet · favorite

Contact Access Commercial Finance Today