L/C ( LETTER OF CREDIT )

Through my work i noticed that several  importers and exporters don’t know about L/C ( letter of credit ),  they get it from their bank officer as it is, and they count that their bank officer will make the job instead of them, which may lead them to fall in a trap, since the bank officer don’t know the exact terms of the deal which his costumer closed with his supplier. as a case happen with one of my clients, that went to his bank and order to open L/C, he give to the officer all details about the product, quantity, price etc…and his bank do so. And he send the L/C to his supplier but he didn’t know that in his L/C section 43 it was written that a partial shipment was allowed, and his supplier instead of sending him the goods in one lot he has send him the goods in partial shipment, and since my client terms was buying on F.O.B condition it had cost him a huge extra costs of transportation and clearance which in the end he loose lot of money on this shipment . for that i decide to give a true sample of L/C with definition for every section (see below ), but before that will go through to understand about L/C and types of L/C. 

L/C ( LETTER OF CREDIT ): 

L/C is a payment method that secure the money for both parties, seller and costumer (buyer ). by this the bank of the costumer apply in behalf of  him to the supplier bank the amount of the goods that he need to pay once the seller deliver the goods to the costumer.  And the seller guarantee that his money will be paid from the costumer bank.

Once the L/C is opened and confirmed the costumer can not stop or cancel the payment if the seller fulfill his part as it agreed in the L/C conditions.

So the L/C is a contract that both banks, the costumer and the seller banks, they make it in behalf of their costumers to secure the payment.

For that, L/C you can draw it as your request, you can include all the conditions that you need from the seller to fulfill.

L/C should include the product name, specification of the product, quantity, packaging, port of delivery, latest time of shipment, documents needed, brand name if its required,  payment time, etc... 

TYPES OF L/C :

Will bring her the must common types: At sight or Delay payment and STBLC

L/C At Sight:

means that the payment will be made by the bank immediately after the vassal leave the seller port . once the bank of the costumer receive all the document from the seller  should transfer the money immediately with no delay.

L/C Delay Payment:

costumer and seller agree that the seller will receive the money after 30 days for an example ( or it could be any other period that they agree ). Once the seller fulfill his part of the agreement and send all the documents to the costumers bank then he will be paid at the same day that its agreed on the L/C.

STBLC ( standby letter of credit ):

it’s another kind of L/C that is more common to the companies that had a weekly or monthly shipment from the same supplier.  

STBLC is a guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment with a third party.

hereby sample of STBLC that i used by myself with explanation beside every section ( in blue color ).

BILL OF LADING, the easy way to understand the B/L format

B/L ( bill of lading ): 

A bill of lading is a legal document between the shipper of goods and the carrier detailing the type, quantity and destination of the goods being carried.

In the bill of loading every part or section is very important to understand and to be recognized, but in my article i separate the important parts that a beginner importer or exporter should at least have the knowledge about them.  

IMPORTANT PARTS OF BILL OF LADING: 

B/L Number: is the unique number provided to the shipment covered under a specific bill of lading. This is allocated by the shipping line and must be quoted by the client for any queries, sailing info, arrival info, claims etc..

Shipper: shipper or exporter or seller, as the party responsible for initiating a shipment, and who may also bear the freight cost.

Consignee: consignee is the entity who is financially responsible (the buyer) for the receipt of a shipment. Generally, but not always, the consignee is the same as the receiver. But it could also be a bank.

Notify party: the party to whom a notice of arrival must also be sent. Usually notify party is same like consignee but it could be a third party (actual buyer) or a forwarding agent.

Ocean vassal: name of the vassal and voyage number.

Place of discharge: port or place where the container is discharged from the vessel.

Description: it include the container number, seal number, description of the goods, num. of packaging,  weight, L/C number, number of license, and kind of the container ( 20 feet, 40 feet) etc..   It can include more than one container in the same B/L .

Payable at: it declares who pay the transportation cost. For example If the sell is C.I.F it will be written: fright prepaid.

Date: is the date on which the original bill of lading is signed and released to the shipper or his agent, generally this date is on or after the container load on the vessel.

OTHER PARTS OF BILL OF LADING:

Reference Numbers: this number can be used to trace the shipments..

Carriers Agents: here the details of the agents at discharge port is usually recorded by the shipping line so that the destination agent of the client/forwarder can contact the shipping lines agents to query the status of the shipment or go for release etc..

Place of Receipt: it’s the place where the shipper delivers his cargo to the shipping line.

Port of Loading: This is the place from which the container is loaded by the carrier onto the Vessel.

Place of delivery: the final destination of the container.

Gross Weight: This is the weight of the cargo that is packed in the container and it does not include the tare weight of the container.

Measurement: Is the calculation of total volume of the cargo in the container.

Place of issue: the place where the original B/L signed and issued.

Number of originals: is the original number of the bill of lading that the shipper or client requires to release from the shipping line. Standard its 3 originals. 

      

EASY STEPS TO MAKE EXPORT

EXPORT:

Export is one big project that needs lot of preparation and energy before you start.  it seems very  complicated but it’s not as difficult as it seems once you know the basic and follow this steps.

 to start an export first of all you should have the self knowledge that you are going to deal with other markets that their understanding and traditions different from yours. You should have the ability to update your behavior and convert it with the traditions and methods of the new market or costumers that you are going to work with.

Once you  are ready for this changes, just follow up with this steps to start:

1.       Choose a Product:  either  you have your own factory / production or you can buy a local product, you should choose the product that you have at least a basic information on it and on the production way. If you don’t have the knowledge so better to learn about the product before you start your way.

2.      Find your Niche:  it’s very important to understand which niche your product is targeting. some  products can be used for several purposes, so you need to know exactly what your product serve, or solve then find your niche.

3.      Check your country law : some of the export product need license or a special government documentation or permissions . And some of the product could be forbidden to export.

4.      Make a market research: start making a research on the product worldwide, find the best markets that are using your product and on this markets:  check competitive products, check specifications of the product that are using in the same market, check weight requested (if your product sold by weight ), check packaging, and prices.

 I recommend  to make a table list and put all the details on front of you on the same list, and to use a local research company in the point market to get a trusted results.

5.      Check the law and procedures in the point market: learn about the law and procedures in the point markets.

6.     Build your global  strategy: your global strategy should be  built for long period, it should include your vision, your sources, your budget, and your aim.

      Be aware that you should be realistic, you should know your point of strength and your point of weakness.  Your global strategy should be the light and the basic reference for your project.

                                                                                                    

7.      Build your marketing strategy on the point market : once you choose the market that you will start exporting  your product,  your marketing strategy should contain your niche, a selling Price, promotions, advertising,  where to start, and what is the steps that you will follow to sell your product,  It should view your selling aim in quantity and in  percentage comparing the global selling amount in this market. 

       Some tips that you can use:, find if there is a local distributor that you  can use his company to sell your product through it, or finding an agent that is working in this market, or if there is an exhibitions in the market that you can show your product.

8.      Traditions and methods: start learning the traditions and manors of the people in the point market, it’s very important that once you enter the market to communicate to your costumers and to understand their behaviors. ( For example in china its not polite to give your memo card in one hand, you should do it with both hands).

9.      Business plan and budget: you need to build a business plan that contain a short term plan and a long term plan, combining it with your global strategy and the marketing strategy in the short term plan. 

      Her I recommend you to get a help from your  Accountant and international  business administration expert.

10.  Adjust the product: once you configure details on your product,  adjust all what need in your product to fit the market that you are targeting ( specification, shape, weight, packaging etc..).

11.   Brand name: make a brand name for your product. It’s worth to invest from the first step to make a brand name that will appear on the product and on the package.

Be aware to check your brand name that is legal to use, or there is other suppliers that using the same name.

I even recommend to register a global trademark  brand name.

Recommendations:  

Web site to your company : a designed web site for your company is high recommended ( it’s the key for your international business ).

International trading web site:  register to international trading web site as a seller, such as: alibaba.com, tradekey.com, etc.. 

Exhibitions: participate in exhibitions and fairs.

Social media: use the social media to advertise your product. 

once your company is ready to launch your product for export market, it’s the time for taking an action:

costumers: find a reliable costumers that you can work with, you can find costumers through exhibitions and fairs, or through an agent that you employee in the point market, or through internet media, or sourcing companies,  or through the industry and commerce ministry, or other governmental  Commercial extension.

Visit your potential costumers: make a trip to know your costumers, learn more on his business, meet the owners and know them personally, collect information as much as you can,  Feel the rhythm in the air.

Discus long term business relationship: explain your targets, and your vision and  discus with your potential costumers about the way that you will head together in marketing your product, discuss the small parts of your business relationship, close the final price for your selling product, and payment terms.  

I recommend in this stage don’t close final deals.

Make your decision: after you complete your visit to all of your potential customers, combining your global strategy with your visit results,  make  your decision for the costumer that can fulfill your demand.

Sign contract: sign a business international contract with your costumer that include all your past agreement.

Start exporting and documentation: arrange the shipment as your customer demand, make  double check on the product to meet your customer request.  and arrange all the documents at the same time. Once the shipment is loaded your document should be ready  ( invoice, packing list,  B/L ( bill of lading ), health certificate, certificate of origin, euro one, ISO, etc… ).

Payment: before you send the document to collect them in your bank, send a copy of the document to your costumer to check it and confirm it. Then send them to be collected within your bank.

Follow up: send to your costumer all details about the shipment, name of the vassal, container number, and estimated time off arrival, and  follow up tracking the shipment.

Stay in contact: keep in contact with your costumer, get his feedback on the product.

5 EASY STEPS TO START IMPORT

IMPORT:

 As a starting import business, you have 5  steps  to start:

1.       Choose a product that fit to you: the first thing to do is to choose a product that you want to import, it will  be more effective to choose a  product that you know more details about it, or can fit on your skills, for example if  you have skills on computers so it will be more relevant to choose products to import from the computer market.

2.      Check your country law: first of all , you need to check if the product that you are going to import has allowance to import and if there is any  special law concerning this product. 

3.      Make a market research: once you choose the product make a market research to check all about this product: selling market price, costumers, average annual sell monthly, payment method in the market, computation, etc..

4.      Check your product price in the international market: now  you need to check if  its worth to import this product to your market, there is lot of sites that you can check prices (go to; Google, Aliexpress, tradekey, Alibaba.com etc.. ). Be careful when you compare the prices to add the transportation cost from the seller home land port to your warehouse , plus the tax ( if there is) on the product.

5.      Business plan and budget: after you decide on the product, it’s the time to make your business plan include cash flow. This stage is very important for the final decision within to invest, how much money you need to invest, and your plan for the future.

Her I recommend you to get a help from your  Accountant or an business administration expert .

                   

once every thing  is  settled, you need to start import, and you need to know how to import actually , for that the first step is to  know the common  international  terminology :

P.I ( Pro forma invoice ): A pro-forma invoice is a preliminary invoice sent to buyers in advance of a shipment or delivery of goods.  it gives a description of the purchased items and notes the cost along with other important information, such as shipping weight and transport charges.

EXW ( Ex Works ):  is an international trade term that describes an agreement in which the seller is required to make goods ready for pickup at his or her own place of business. All other transportation costs and risks are assumed by the buyer.

F.O.B ( free on board ): Free On Board (FOB) indicates that the supplier pays the shipping costs that usually also include the insurance costs from the point of production to a specified destination, at which point the buyer takes responsibility. (usually it’s the port of the seller ).

C.I.F ( cost, insurance, freight ): Cost, insurance and freight (CIF) is a trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier.

B/L ( bill of lading ):  A bill of lading is a legal document between the shipper of goods and the carrier detailing the type, quantity and destination of the goods being carried.

TT (telegraphic transfer  ): telegraphic transfer  is a form of  bank transfer.  Its transfer money from bank to bank directly.  T/T payments are a cheap and fast way of transferring money overseas through most banks.

C.A.D PAYMENT: ( cash against document ): The cash against documents is a management and payment tool for international transactions. Its purpose is for the seller to get the amount owed by a customer from a bank against delivery of documents (invoice, packing list,  bill of lading...etc.).

L/C ( letter of credit ):  a letter of credit is a payment undertaking given by a bank to the seller and is issued on behalf of the applicant i.e. the buyer. The Buyer is the Applicant and the Seller is the Beneficiary.

second step:

Find the source of the product: you need to make your buying research about the best market to buy  your  product, by finding the best quality and best price , and transportation delivery time.

So the best  thing to do is to go to Google and check your product  through different  websites: ( , like Alibab.com, ALIexpress.com, tradekey.com, buysmartjapan.com, tradeindia.com, etc.. ) compare quality and price.

Contact suppliers and negotiate them: send Emails to the suppliers that fit your product and ask them to give you more information about it, ask them  more details on the quality issue,  investigate every part that you have doubts about it. And at last negotiate with them on the price , this is very delicate issue and you need to be very careful , some suppliers can reduce the price but then they will low from the quality, be sure when you close the final price with the supplier that you will get the same specification that you asked for.

Shipment and packaging: close with your supplier about how you want your product to be packed, and deliver. Always ask your supplier to send you photo of the packaging since its very important part for marketing later on.  Once your packing is  designed well  you have more chance that costumers will buy ( especially if you are selling a new product).

Documents: finalize with your costumer on the shipping documents that he will apply for you ,in further to the  Invoice, Packing list, B/L ( bill of loading ). like Certificate of origin / Euro one, Certificate of health, etc…

Brand name: I will recommend you to start import your product in your brand name, first that will give an extra value to the product, second will make a difference between your product and other competitors  products.

Be aware some of the suppliers can make your brand name on the package free of charge or at a very small cost. You can ask them if they can type the brand name on the product also ( depends on the product ).

Payment: negotiate with them on the payment terms. Most of the suppliers ask you for advance  payment to start producing your item, and the rest will be when delivered by C.A.D payment. So you need to be sure that once you pay the advance payment you will not get it back, for that be careful with whom you are working with.

Or the best way is to ask your supplier for L/C payment then you will minimize the risk, once he deliver the goods your bank will pay him. ( there is different types of  L/C  will talk on this later).

P.I ( pro forma invoice): ask your supplier to send you P.I, which is kind of contract,  an advance invoice that include all the details of the product, specification, quantity, price, packaging, time of  delivery. By that you can check the final agreement with the supplier.

Be aware to have the signature of the seller on the P.I ( which indicate his acceptance for all the details that included in the P.I ) .

Checking quality before loading: once your supplier start producing, ask him to send you photo’s of your finished product, then you can control if the product fit to your demand as it written on the P.I.

I recommend always to use a local company on the supplier region or SGS company to check the goods before loading, photo don’t show you the quality.

Following up: track your shipment and follow up with the supplier to send you all document needed and update your shipping agent.

Receiving the goods: when you unload the container, check your product carefully before start marketing it ( especially if it’s a Hi tech products ).

Check the quantity to be sure that you received the same amount of product.

Contact the supplier: once every thing is settled contact the supplier to give him your feedback on the product, and thanks him.