The establishment of a Letter of Credit, or LC as they are commonly known, is expensive particularly when the issuing bank takes control of the foreign currency exchange. Put simply, companies can reduce the cost of LC’s by pre-purchasing the currency from Forex NZ and thus saving money on the exchange rates.

DEFINED

A letter of credit is a banking mechanism that allows importers to offer secure payment terms to exporters. All letters of credit contain these elements:

• a payment undertaking given by the bank (issuing bank)
• on behalf of the importer (applicant)
• to pay an exporter (beneficiary)
• a given amount of money on presentation of specified documents representing the supply of goods
• within specific dates

OPTION ONE: Open a Foreign Currency Account with your bank

1. Establish the Letter of Credit with your bank.
2. Open a Foreign Currency Account with your bank.
3. Three days before the LC is due, contact your Forex NZ dealer and purchase the amount of Foreign Currency needed to pay for the LC.
4. Forex NZ will transfer the foreign currency into your foreign currency account.
5. The day prior to the LC falling due, advise your account manager that the payment for the LC is to come from your foreign curency account.

OPTION TWO: Letter of Credit paid by Forex NZ 2000

1. Establish the Letter of Credit with your bank.
2. Advise your bank that you have the Foreign Currency coming from an outside source to pay for the LC.
3. Ask the bank for the account details for the Foreign currency to be sent to and pass this onto your Forex NZ dealer.
4. Three days before the LC is due, contact your Forex NZ dealer and purchase the amount of Foreign Currency needed to pay for the LC.
5. Forex NZ will transfer the foreign currency directly to your bank to pay for the Letter of Credit.