"As for LC; I'd be very worried about accepting one from a bank in a country other than your own. Have them open the LC with your bank and not theirs. They will have to pay various additional arrangement fees; but at least they get to use a LC. "
This is not practical. As someone who has dealt with LC's for more than 15 years with minimum value of each LC's above USD 50,000 , I may advise that..
Lc's are opened from the buyers country (bank) on the supplier's bank (country). I think we are talking about an international LC not a local intra country one.
The Lc guarantees payment IF a certain set of conditions in the form of a set of documents is presented to the LC issuing bank.
The Lc is a bank to bank transaction. A clean LC will guarantee payment from the issuing bank to your ( negotiating ) bank without taking the buyers approval IF the documents are in order.
(the qualifying point is IF THE DOCUMENTS ARE PER LC TERMS)
If documents are with discrepency then, buyer approval will be sought by LC issuing bank, before any payment is made.
A standard LC should be Irrevocable ( cannot be cancelled by buyer).
A Lc will normally have the following set of documents...
Invoice in 3 - 4 originals
Packing List in 3- 4 originals
A certificate of origin ( in some cases)
A certain quality declaration ( in some cases)
A negotiable transport documnet. This may be in the form of a Bill of lading ( sea shipment) or AWB for an air shipment.
The buyer will normally insist for a clean on board transport document. ( this is his right).
It is advisable to ensure that the transport document is issued to the order of the LC issuing bank with a notification given to the buyer. At times, it may be acceptable to issue a transport document which is To Order and Blank Endorsed. This kind of a document is equivalent to cash for the bearer of the document as it gives access to goods.
Never send original transport documents by courier in advance to buyer. This makes the Lc redundant. Many smart customers put this clause in Lc which should be amended.
I repeat.. if you have no experience in dealing with LC's avoid same. Do study the provisons of UCPDC ( uniform customs and practice for documentary credits 500). All international LC's follow this uniform practice.
Here is a super tip..
If you are not confident with the customers bank, then you may ask the customer to allow YOUR BANK to add a Confirmation clause to the LC. This will ensure that your bank will scrutinize LC very carefully and CONFIRM to make payment to you incase of problems with foreign bank..(subject to documents being in order). This may cost upwards of 1- 2 % of LC value so try to get the customer to bear the cost.
If you are not confident about the Lc issuing bank..then you may ask YOUR bank to check if the issuing bank is categorized as PRIME or not. If you bank says the LC issuing bak is PRIME, then it means that THEY have confidence in that bank.
Do check the costs involved in negotiating an LC in your country/bank. It may be more than you expect.