British businesses wanting to export to emerging markets should consider the value of using letters of credit (L/Cs) to help secure funding according to UK Export Finance’s (UKEF’s) export finance adviser Paul Wright.
He says that UKEF often encourages exporters to trade on L/C terms, even though evidence points to growing preferences for open account trading or new digital initiatives designed to offer similar payment security without apparently less hassle such as the Bank Payment Obligation.
Wright argues that exporters should still consider using L/Cs, though he emphasises that a careful risk calculation needs to be made.
Ultimately it is up to businesses to choose on which terms they trade, but Wright says that when considering L/Cs, the cost of using them should be compared to the risks of not using them, depending on the markets served.
With UK exporters increasingly looking beyond traditional trading partners in EU member states and the US, towards emerging markets in Africa, South America and Asia, a different approach to payment terms may be needed Wright suggests.
He points out that these markets present great opportunities, but there is often less chance of recovery or litigation following non-payment.
Categories: Trade Based Financial crimes News