Our team at International Trade Finance LLC work closely with clients worldwide.
A couple of years ago we were approached by one of our brokers in India, who introduced us to a local contractor who had just been awarded a contract for a residence building project in the state of Tamil Nadu, India.
At that time, the contactor’s business was operating for several years, slowly but steadily growing. Being awarded the project gave the contractor both comfort and stress. It was his biggest contract yet and knowing should everything go smoothly, he could expend his business and go on a path to financial relief.
He faced his first obstacle looking to buy raw materials to be used for the project, particularly medium dense fibre boards. At these scales of materials in need of use, our contractor had to find a competitive price that will keep his margins wide enough, so for the first time he set up to buy the fibre boards from a supplier outside India.
Since goods had to be shipped from country to country, our team of trade finance specialists advised our client to open up a documentary letter of credit on his behalf. A documentary letter of credit is a document, usually issued from a bank that assures the supplier that they will receipt payment up to the amount of the letter of credit, as long as certain documentary conditions have been met.
One of these conditions is the shipment of goods by the supplier, keeping our client’s mind in peace knowing there is no chance he will pay for the goods but the supplier won’t ship them. Another advantage for our client was him having the bank act on his behalf, saving him valuable time he needed to put into his operation.
Because this was our client’s biggest project at that time, we wanted to help him keep his cash-flow at a level that will keep him operating, and if needed avert resources to other projects. One of the conditions of the documentary letter of credit was a deferred payment of 60 days from the bill of lading date, meaning our client didn’t have to pay the money upfront.
The contractor also needed to make sure he is keeping up with the project’s schedule. The issuance of a documentary letter of credit sets a very specific timeline for the process of shipment and payment of the goods, hence assisting our client in planning ahead.
After the issuance of the letter of credit via an MT700 SWIFT message to the supplier’s bank, the schedule was executed exactly as planned; our client received the goods within the timeframe stipulated in the credit, helping him finish the project according to its schedule.
We have since opened several letters of credit on our client’s behalf, helping him grow his business even more, while maximizing his cash-flow and capital.