this is global logistic and supply chian class. pplication of Material from Text
ID: 347694 • Letter: T
Question
this is global logistic and supply chian class.
pplication of Material from Textbook Chapter 7
Your company has decided to export to an Indian distributor. A major concern you have is getting paid by this distributor. You have asked the distributor to use irrevocable letters of credit.
a. Discuss the non-payment risks involved (4 points)
b. Describe in step-by-step detail how payments in an irrevocable letter of credit works (8 points)
c. Explain how an irrevocable letter of credit helps to minimize the risk of non-payment (8 points)
Explanation / Answer
If a company has decided to visit in India to the exporting and relying on the distribution system, one of the major concerns the payments from the distributors in India.
Some of the major non-payment risk are as follows.
Irrevocable letter of credit is an essential part of doing Overseas business. It works both of the sides, buyer and seller both are protected with the specific statement. A document of a bank which guarantees the payment and provides extensive security in overseas businesses when buying and selling goods.
From the buyer's side, bank issue a letter of credit this is pain to the seller if the seller is met with all of the requirements mentioned in the specific letter. It definitely increases the overall security in dealing with Overseas countries like India.
Letter of credit for buyers gives a surety to get the deliver product. In case the product is not delivered, stand by letter of credit is used as a payment tool and later the bank issues a penalty to the company who was unable to fulfill the specific order.
Irrevocable letter of credit definitely reduces the overall risk involved in the non payment. It supports the buyer as well as the seller in a positive way in which financial terms are kept in balance by the bank and buyers and sellers can easily do their business without worrying about the financial management as well as funds. This increases the level of protection for both the parties and also provides a better support to the overall business structure across different countries as the supplier and the receiver can easily do the business without having a fear of not getting paid.
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