While taking into consideration of international trade, the first thing that must keep in mind is to make the payment methods sound and clear. The very first question of the buyer is the effective and authentic payment method to buy products. For a cosmetic brand development in the international market after all the marketing measures, you have to pay attention to the risk-free payment method.
If you rely on the cash payment method, you will restrict your clients as cash flow is not possible for every customer. The international trade consultant will guide you about the different risk-free and fast payment methods that suit you as well as your customers. These methods involve the draft collection, cash in advance, letter of credit, consignment, or the account opening. Let us discuss the letter of credit in detail.
Brief description of letter of credit
The letter of credit is a contractual agreement issued by the importer bank to act on the buyer’s bank, with the surety of payment to the company or exporter on the basis of receipt or documentary credit. There is the involvement of international banking institutions and networks to have a promising agreement between the two parties. The exporter bank will incorporate intermediate banks to help the smooth transaction of payment.
The process of the letter of credit
To make an easy payment transaction through a letter of credit there is a stepwise process for makeup companies to follow for their cosmetic brand development.
- After confirming the order, the importer has the responsibility for opening a letter of credit for the exporter from issuing bank.
- The letter of credit them forwarded to the exporter when issuing bank passes it to the designated bank.
- After getting the letter of credit the exporter sends the products to the cargo service.
- After dispatching the product from the cargo end, the shipment document will send to the intermediate designated bank.
- The intermediate designated bank briefly evaluates the document and collects the payment amount from the issuing bank.
- The total cost of purchase will be credited from the importer account at issuing bank.
- In the end, the issuing bank will provide the shipment document to the importer to collect the product by clearing customs.
How to use a letter of credit as an exporter
There are certain things that should keep in mind while using a letter of credit for export. The international trade consultant will guide you in the following particulars.
You have to keep in mind the total cost of shipment and insurance while making the product price for international trade because the bank will only pay the amount mentioned in the letter of credit despite the increased shipment charges or cargo.
Before confirming the order, go for the bank consultancy to ensure the letter of credit is suitable for your product or not and how much it will cost.
After receiving the document, you have to thoroughly read the terms and conditions and the validity of the letter. Make sure the terms are possible for you to agree to or not.
In the export business, you have to take every single step with caution and keep an eye on the whole process. For cosmetic brand development, a makeup manufacturing company must ensure their way of export payment method is appropriate and valid to avoid loss. For this purpose, the international trade consultant can help small and large exporters to have a smooth-running trade business.