Category Archives: Letter of credit

letter of credit

My Supplier Wants A Huge Deposit. What Do I Do?

Consider a letter of credit

If you’re an importer and your overseas supplier wants a huge deposit before they’ll supply the goods, what do you do? Consider a letter of credit.

Suppliers want money up front

If you haven’t worked with a supplier before, they’ll generally want a significant deposit before they’ll start work or send any goods – particularly if they’re overseas. This is understandable, but it creates real cash flow problems for most importers. In these situations, a letter of credit is an option.

Letter of credit – how it works

A letter of credit is a document that guarantees payment by the Lender to a third party if certain conditions are met. Importantly, it’s a way of dealing with your supplier’s demands without having to part with any cash up front. Here’s how a letter of credit works:

Go to an MFAA member.
Through your MFAA member, you apply to a lender for a letter of credit.
If approved, your lender will send the letter of credit to your supplier’s bank.
Your supplier’s bank then notifies their client that the letter of credit has been received, and that they can ship the goods with guarantee of payment.
You pay your supplier for the goods when you receive them.
Letter of credit – a specialist business finance product

Letters of credit can improve your cash flow. However, they can be expensive and they are a specialist area. Get the foreign exchange arrangements or loan conditions wrong, and it could cost you big time. You need to talk to a business finance professional. To learn more about letters of credit, talk to an MFAA member today.

Call Gary Plotzza an MFAA Approved Credit Adviser is not your average mortgage broker.Finance Broker