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  • Letters of credit

     
     

    Where payment against a letter of credit is stipulated then the seller should obtain full details of the buyers letter of credit as soon as possible. This is to ensure that the required documentation is in fact obtainable, that there will be sufficient time to obtain such documentation, and that there are suitable shipping opportunities to the named port of destination within the stipulated period of shipment. The European Contracts for Coffee only require a full and complete letter of credit to be available for use from the first day of the contractual period for shipment, even though the letter of credit may well contain stipulations on what must be done before loading. Therefore it may be wise to provide specifically in the contract for earlier receipt of the full and complete letter of credit. Sellers should also ensure that the letter of credit remains valid for the negotiation of documents for at least 21 days after the date of shipment. (See also 10.09.00 Risk and the Relation to Trade Credit).

    Both ECF and GCA stipulate this. If the length of validity is not carefully checked one could fulfill all the L/C conditions only to find it has lapsed.

    Buyers calculate all costs (from FOB through to delivery at final destination) to arrive at the final cost pricelanded roasting plant, taking into account any extra costs. For example, an origin that habitually delivers documents late (i.e. after the vessel has arrived) is penalized as the buyer will provide for this eventuality in the calculation to landed plant. In fact the importer actually saves money by not having to finance the goods for the expected period of time, but should the goods arrive before the documents then serious trouble will arise. If a letter of credit is demanded, the bid price will be lowered correspondingly to cover the costs. Such a bid would also be lower than that for similar coffees from other origins that do not require a letter of credit.

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