It is an inevitable business arrangement by which beneficiaries who sell goods, utilize a letter of credit as the method of conformed payment by the assurance of the issuing bank that, if they present the documents stated in the letter of credit, the issuing bank will honor their demand for payment.
The Buyer in turn is assured of the receipt of the item imported as per the terms of the purchase contract.
Challenges of LC management in a typical organization
- Dealing with multiple systems, processes and information channels
- Person Dependency
- No or Limited Access to Data
- Lack of Information to take business decisions
- Spreadsheet driven
- Vulnerable for Loss of Critical Data
- Lacks Standardization
- Lack of Interconnected Tasks/Milestones.
- Visibility of Credit Availability
- Predictability of Cash Flow Requirement
- Restricted or No access to track payments / Receipts