Step 1: Selecting the Correct Variables to Monitor
Since the entire premise of having a Six Sigma process is based on measurement, comparison of measurements and setting corrective action plans, it is crucial that the variables (metrics) being measured are appropriate. Wrong measurements lead to wrong decisions which are expensive and a wastage of time and resources. As explained in the Define module, […]
The AT&T – Time Warner Merger
AT&T is one of the biggest phone companies in the world. In fact, this was the company that first started building telephones. On the other hand, Time Warner is a giant in the media space. It owns major media channels like HBO and CNN. Each of these companies is gigantic in their own right. This […]
Handing off the Project to the Process Owner
After the control charts have been created and deployed, the control phase of the DMAIC methodology comes to a close as far as the project is concerned. The solution that the team had set out to reach has now been reached. It is therefore time to transition the process from being a project to being […]
Business Process Improvement Plan – Making a Beginning with BPI
Business Process Improvement has gained ground in all sectors of business as an on-going program that is implemented from time to time. Periodically business organizations embrace this program to reduce the barriers that create obstacles to the work flow as well as to remove redundant processes that are outdated and do not add value to […]
Inventory Migration – Meaning, its need and importance
The need for Inventory Migration from one warehouse to another warehouse does not come about very often in Supply Chain Operations. However, sometimes the business demands necessitate a change of warehousing location, setting up a new location or even a change of business model. The occasion and need for an inventory migration can come about […]
International trade between an Exporter and Importer would entail multiple transactions in terms of documentation exchange, physical cargo movement as well as settlement of payment which have to be clearly defined and setup in order to ensure smooth business transaction.
Over the years international trade has established various methods and payment mechanisms that are accepted globally by all financial institutions and other related parties.
Normally when the Customer is new to the Exporter, the business transactions are done either based on advance payment or Letter of Credit option. LC is one of the safest mechanisms available for an Exporter to ensure he gets his payment correctly and the importer is also assured of the Exporters adherence to his requirement in terms of quality, quantity, shipping instructions as well as documentation etc.
A letter of Credit is the Buyer’s Banker’s promise to the Bank of the Seller/Exporter that the bank will honor the Invoice presented by the Exporter on due date and make payment, provided that the Seller/Exporter has complied with all the requirements and conditions set by the Importer in the said letter of credit or the Buyer’s Purchase Order and produced documentary evidence to prove compliance, along with the necessary shipment related documentation.
A Letter of Credit is always sent by the Buyer’s bank to the Seller’s Bank or any bank that is becomes an advising bank. Normally the Seller’s bank becomes an advising bank when a normal LC is received and it delivers or advises the buyer regarding the receipt of LC with no responsibility towards it. In case of a Confirmed LC, the Seller’s bank checks out the authentication of the LC from the Buyer’s bank and confirms to stand responsible for negotiating, collecting payment from the Buyer’s bank and making payment to the seller in line with the terms and conditions stipulated in the LC. By adding confirmation to the LC, the Seller’s bank too becomes equally responsible to make payment for the transaction under the LC.
Seller’s Bank in turn will charge and collect service charges from the Seller for the same.
Normally the Letter of Credits issued is irrevocable, which means that no single party can unilaterally make any changes to the LC, unless it is mutually agreeable to both the parties involved. However an LC is said to be revocable if the terms allow any one single party to be able to make changes to the LC unilaterally.
However it is in the interest of the buyer that he should always insist on irrevocable Letter of Credit.
When the LC is opened, stipulating the condition that, on presentation of the negotiable set of shipping document by the seller as per the terms of the LC are made, the buyer’s bank will make payment at sight meaning immediately to the seller’s bank subject to fulfillment of terms and conditions of the LC being fulfilled, the LC is called Sight LC.
If the payment schedule under the said LC stipulates payment at certain future dates after presentation of negotiable set of shipping documents by the Seller and fulfilling the LC terms and conditions, such an LC is termed Future LC or Credit LC. It is quite normal for sellers to extend credit of 30 days to 60 days under LCs. However the shipping documents would have to be presented to the bank immediately so that they documents reach the buyer well ahead in time before the consignment reaches the foreign shores and the buyer is able to clear the consignment and take delivery.
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