Letters of Credit

The primary financial tool used in most import/export transactions is the Letter of Credit. Do you buy or sell goods internationally? Are you a small or new business selling to large firms? You likely need Letters of Credit or import/export financing services such as Purchase Order Financing and Invoice/Contract Financing. We can help you with the following financial instruments and tools, which may be required or helpful in completing your international transactions.

There are many different types of Letter of Credit that may be used depending on the specifics of the transaction and the parties involved. The following is an overview of ARGO INTERNATIONAL GmbH's (German Chapter of ARGO Int'l Inc. USA) Letter of Credit solutions.

What is a Letter of Credit?
Letters of Credit are commonly used to reduce credit risk to sellers in both domestic and international sales arrangements. By having a bank issue a letter of credit, in essence, one may be substituting the bank's credit worthiness for that of the customer. Letters of Credit are also used domestically when dealing with a small or new business.

Why use a Letter of Credit?
International trade laws sound good and look good on paper, but are often difficult to enforce when dealing with a foreign party. So most international transactions are secured using a financial tool known as a Letter of Credit. A Letter of Credit may be required in cases when a party does not have sufficient financial history, assets, or credit to support good faith credit terms. This is often the case with startup or growing companies.

Two Basic Types of Letter of Credit:
Documentary Letter of Credit can be either Revocable or Irrevocable, although Revocable is extremely rare. Irrevocable letters of credit can be Confirmed or Not Confirmed. Each type of credit has advantages and disadvantages for the buyer and for the seller. Charges for each type will also vary. However, the more the risk by guaranteeing payment, the more the charge will likely be for providing the service. Documentary Letters of Credit are the most common, are used on an individual transaction, order, or invoice basis, and generally have specific conditions applied to them.

Standby Letter of Credit is a payment or performance guarantee used primarily in the United States. They are often called non-performing letters of credit because they are only used as a backup should the buyer fail to pay as agreed. Thus, a stand-by letter of credit allows the customer to establish a rapport with the seller by showing that it can fulfill its payment commitments. Standby letters of credit are used, for example, to guarantee repayment of loans, to ensure fulfillment of a contract, and to secure payment for goods delivered by third parties. The beneficiary to a standby letter of credit can cash it on demand. Stand-by letters of credit are generally less complicated and involve far less documentation requirements than irrevocable letters of credit. Contact us to discuss your situation and how this option can be used.

How does a Letter of Credit Work?
A Letter of Credit is a document typically issued by a credit worthy financial institution guaranteeing that your supplier will be paid upon delivery of your raw materials, or to guarantee payment when you sell goods to a foreign customer. Here's how it works in both instances.

Importer using a Letter of Credit:
An importer obtains a purchase order from the end buyer. ARGO INTERNATIONAL INC. through its correspondent banks around the world (more in Europe) issues a Letter of Credit to the overseas seller. When the goods arrive they are manufactured to completion and/or delivered to the buyer and ARGO INTERNATIONAL INC. forwards the invoices to the end buyer. When payment is received by ARGO INTERNATIONAL INC., all expenses incurred are deducted and the balance is immediately forwarded to the importer.

Exporter using a Letter of Credit:
An exporter obtains a Letter of Credit from the foreign buyer. The exporter assigns the Letter of Credit to ARGO INTERNATIONAL INC. or its nominated agent / bank anywhere in the world, or the Letter of Credit is issued directly in favor of ARGO INTERNATIONAL INC. We finance the purchase of ordered goods and the exporter ships to the overseas buyer, ARGO INTERNATIONAL INC. negotiates the Letter of Credit. When the buyer's bank makes payment, ARGO INTERNATIONAL INC. deducts all expenses incurred and the balance is forwarded to the exporter. Note: The Letter of Credit transactions described above are Documentary and Irrevocable, and work, in the case of a foreign supplier, if your supplier grants you credit terms that are at least as long as the credit terms you provide to your customer in addition to the time it takes to build your product and ship it to your customer. The Letter of Credit is simply a guarantee that your supplier will get paid according to the terms of sale - it is not financing.

Other Types of Letters of Credit we can offer for appropriate situations:

Invoice Financing, Discounting, Contract Financing, Bridge Financing, & Repurchase Buyer Invoice / Contract Financing

You're a growing business. Your customers demand credit terms. Providing credit terms requires capital while your customers hold your money hostage. Factoring, otherwise known as Accounts Receivable Financing, is utilized to BRIDGE the gap between the time of transaction and the time CASH payment is received (credit terms). Factoring is the time-honored practice of selling your receivables for CAPITAL in the form of Immediate Cash, while eliminating the hassle of collecting from your customers. Factoring gives you the use of short term funding for your receivables while providing you with the financial ability to attract larger customers by offering them credit terms. The benefits of factoring are immense... Immediate Cash

Enhance Your Balance Sheet

Save Time and Money

Reach sales, and profit goals attainable by no other means

Factoring is often the most cost effective financing. Receivable financing can be quite inexpensive. A $10,000 invoice can cost as little as $200 to fund. By taking early payment discounts from your vendors and/or possibly adding a little to your invoice to cover the cost of credit terms (you can offer a discount if the invoice is paid within 10 days for example), you may be able to effectively factor for free. In addition, we offer repeat business discounts when you factor additional invoices from the same customer. Factoring is often less expensive than a loan or line of credit when you consider closing costs, origination fees, points, interest, and service fees. And let's not forget that loan approvals take time, and require a strong financial position.

The concept of Factoring can also be applied to a host of business and personal receivables in the form of Contract Assignments and Repurchase Agreements. ARGO INTERNATIONAL INC. can provide you with immediate funding for the repurchase of your commercial contracts, estate settlements, viatical settlements, annuity based settlements, workers compensation settlements, court ordered payments and judgments, and insurance policy payments and settlements.

Learning new ways to create growth and stability are goals often overlooked by many firms. AtARGO INTERNATIONAL INC., our client's success and prosperity is priority number one, contact us to discuss your financing needs in detail.