The thing that you must always keep in the forefront of your mind when thinking about entering into a contract with a customer overseas is that apart from the physical distance you have very little knowledge of the company, business premises or their financial status.

Owing to the growth in International Trade most financial institutions have maintained a database of companies all over the world. Through your Bank or broker you can ask for a credit check on any potential business partner in the same way that you might do in your own country.

It is recommended that you always do so, whatever the value of the transaction. There is no guarantee that you will not have any problems but it is an initial step in recognising that the company to which you intend to pay your hard earned cash, or forward your total stock does exist and has a record of satisfactory business activities.

When looking to either import or export you may not know the other business involved in the transaction; quite similarly they may not know anything about you. Both of you may be keen to strike a deal but can you trust them to pay and can they trust you to ship the goods?

The answer is to use the services of someone who you can both trust and each can trust their own bank (hopefully!)

And the method of doing this is by an Irrevocable Documentary Letter of Credit.

It is called irrevocable because it takes the consent of both parties importer and exporter to cancel it. Once set up it must follow its course unless one party allows it to lapse with the agreement of the other.

It is documentary because it concerns the handling of the documents required to ship and clear the goods to which they refer.

It is a Letter of Credit because the terms are set out in letter form. Whether payment is to be made by cash or at the end of an agreed term it represents the giving of credit from one person to another for a smaller or greater period.

As an importer of goods there are certain documents that you will require. The most important of these is the document of title usually a Bill of Lading if the goods have been dispatched by ship. There are also Airfreight Bills and Consignment Notes for road transport. With these you can claim ownership of the goods and clear them through customs which is why no exporter would let this document be released unless payment has been made or promised to be made through the importer’s Bank.

The remaining documents will vary with the order and country requirements. The usual set include invoices, packing lists, Certificate of Origin (to confirm where the goods originate as there could be Customs restraints on importing goods from certain countries), Insurance policies and where applicable confirmation of quota where one country will only allow the import of a certain amount of goods from another country (such as the cotton trade in the UK).

Along with this set of documents may come a Bill of Exchange. This will require acceptance by means of a signature by the buyer if an agreed term of payment has been set such as 30 days from acceptance.

The full set of documents that is required must be agreed between exporter and importer before the Documentary Credit is set up.

It is normal for the importer to specify the documents required as it is he that needs them to clear customs. He will also determine through which Bank and branch the Documentary Credit is to be issued. Levels of expertise amongst Banks vary greatly but on the whole using one of the major High Street names will not let you down.

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