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COPYRIGHT 2002 National Association of Credit Management
For over a century, the Letter of Credit (LC) has served as the primary international trade financing tool. The LC owes its remarkable success to the fact that is has so effectively fulfilled its dual mission of minimizing risk and facilitating smoother trade transactions.
However, the LC was originally designed to address issues related to a global marketplace that, in many respects, have changed over time or no longer exist. A century ago, much slower methods of transportation and communication ensured that many exporters and importers rarely met, and the LC emerged as an optimal solution to their concerns about secure title transfer and payment.
Today, the emergence of new telecommunications tools has contributed to enhanced trust between global buyers and sellers and a genuine boom in international trade.
While the LC still has a valuable role to play in today's more diverse and complex global marketplace, it's no longer the best possible financing solution in every situation. In fact, banks and other financial services providers have developed a wide array of global trade financing tools and technologies, such as Documentary Collection and Trade Asset Distribution, that give importers and exporters increased flexibility in how they structure their trade transactions.
A New Era in Global Trade
In recent decades, the nature of international trade has changed dramatically. The telecommunications revolution has provided exporters and importers with the means to communicate more regularly, affordably and with such a sense of immediacy that it's far easier to develop a measure of trust with ones trading partner than was possible in the past.
In addition, many companies now support trading relationships that extend back at least 20 years, so their concern about the reliability of payment and title transfer has become a less pressing issue. Similarly, many firms have moved some of their operations overseas or have formed longstanding partnerships with overseas suppliers and, in the process, have gained a familiarity with...
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