Financing Your Project – Letters of Credit
For many of our international customers, Letters of Credit (L/C’s) can be a useful tool when financing their equipment project and provide many protections for the buyer and the seller. In some cases, this payment tool is the only way to send US Dollars out of the initiating country. Insta-Pro is pro-active in ensuring that our customers can navigate the process as simply as possible.
For every Letter of Credit shipment, Insta-Pro will send order-specific instructions for the customer to provide to their bank prior to issuing the L/C. Some of the key pieces information included in these instructions are the following:
Latest Ship Date: Banks often charge fees based on how long an L/C is going to be open so a customer may look at the date on our instructions and ask that it be shortened. However, there are a number of items that factor in the calculation of this date. The first is based on the Dispatch Date that was indicated on the Insta-Pro Purchase Agreement. If we quoted 6-10 weeks, we would start the calculation at 10 weeks. We then add 3 weeks to allow the container shipment to make its way from our factory in Iowa to the US or Canadian port. Iowa is centrally located in the United States and the containers typically travel to the coasts via rail. This transportation method is slower, but definitely more economical and results in lower freight costs for our customers. Finally, we add 2-4 weeks to give the customer time to work with their bank to open the L/C.
Confirmation: We ask for a confirmed Letter of Credit so that the US bank agrees to pay the LC amount in case the foreign bank defaults. Many country changes can occur in the 3-4 months that an L/C is typically open for and we want to be able to supply the order without any disruptions.
Partial Shipments: We always ask that partial shipment be “Allowed”. However, be assured we plan on sending out complete orders and in the rare case where that is not possible, we would contact the customer so they can decide whether to delay the shipment or send a partial shipment. The main reason we ask for the “Allowed” partial shipment is when the order requires more than one container. This allows the containers to travel on different vessels if necessary. It is possible for us to load containers within a day of each other, but they then arrive at the port a week apart due to weather or rail delays that are out of our control.
Transshipment: We also ask that transshipment be “Allowed”. With all the ocean carrier mergers in recent years, it is common practice for carriers to stop at a hub port and have the vessel’s containers re-distributed to other vessels traveling in multiple directions.
We ask to see a draft version of the L/C before the bank issues it. Along with our bank (given they have followed the instructions we provided in advance) and freight forwarder, we review it to ensure we can comply with all the requirements. If changes are required, it is easier to make them at this stage of the process. Once the LC is confirmed, it is in place, the customer’s work is done. Insta-Pro will then initiate the customer order and start building! The original documents are submitted by Insta-Pro to the US bank when the order has shipped and sailed. After being approved and/or accepted, they will courier the documents to the initiating bank. Those original documents will then be available for the customer to use to import and clear the goods. Insta-Pro provides many resources to our customers as well as advice. If you would like to learn more about Letters of Credit, please contact the sales director nearest you.
