There are several modes of payment in International Trade:

1. Cash in Advance
2. Consignment
3. Open Account
4. Documentary Collections
5. LETTER OF CREDIT

The one I am going to discuss today is Letter of Credit.

What is the Letter of Credit?
a contractual agreement whereby the issuing bank (importer's bank), acting on behalf of the customer (the importer or buyer), promises to make
payment to the beneficiary or exporter against the receipt of complying stipulated documents. The issuing bank will typically use intermediary
banks to facilitate the transaction and make payment to the exporter.

So, first, ngano man mag letter of Credit pa? Mag cash nalang diay?
So, why cash advance or cash on delivery kunuhay won’t work. We’re talking about international trade here that probably costs millions or
hundred millions. If mag Cash basis ta:
1. The buyer might encounter cash flow problems.
2. The buyer might find another supplier.

THE LC PROCESS:
1. Initial Agreement
Negotiation and Sales Contract: The buyer (importer) and seller (exporter) negotiate the terms of the sale and agree on using a Letter of Credit as
the payment method. The sales contract specifies the terms, including price, delivery, and LC requirements.
2. Application for Letter of Credit
Buyer’s Request: The buyer applies for an LC from their bank (issuing bank), providing details of the sales contract, including the amount,
beneficiary (seller), and terms of payment.
Issuance of LC: The issuing bank evaluates the buyer’s creditworthiness and, upon approval, issues the LC, sending it to the advising bank in the
seller’s country.
3. Advising the Seller
Advising Bank’s Role: The advising bank receives the LC, verifies its authenticity, and forwards it to the seller (beneficiary).
Review by Seller: The seller reviews the LC to ensure it matches the sales contract terms and conditions. Any discrepancies must be resolved
with the buyer and the issuing bank.
4. Shipment of Goods
Preparation and Shipment: The seller prepares the goods for shipment, ensuring they meet the specifications outlined in the LC. The seller
arranges for the goods to be shipped to the buyer.
5. Presentation of Documents
Document Preparation: The seller gathers the required documents as specified in the LC, which may include:
Commercial invoice
Bill of lading or airway bill
Packing list
Certificate of origin
Inspection certificate
Insurance policy
Submission to Advising/Negotiating Bank: The seller submits these documents to the advising bank or negotiating bank for review.
6. Verification and Payment
Document Verification: The advising/negotiating bank reviews the documents to ensure they comply with the terms of the LC. If everything is in
order, the bank forwards the documents to the issuing bank.
Issuing Bank’s Review: The issuing bank reviews the documents. If they are correct, the issuing bank releases payment to the
advising/negotiating bank.
Payment to Seller: The advising/negotiating bank pays the seller once it receives funds from the issuing bank.
7. Release of Goods
Document Handover to Buyer: The issuing bank provides the necessary documents to the buyer, enabling them to take possession of the goods
from the shipping company or carrier.
Goods Collection: The buyer collects the goods from the port or airport using the documents provided.
8. Settlement
Final Settlement: The issuing bank debits the buyer’s account for the amount of the LC, completing the transaction.

DTI Guide to Exporting

1. Business Basics
Company Registration
 Business Name Registration
Barangay Clearance
Business or Mayor’s Permit Registration
Tax Registration
Employee Registration
Client Profile Registration System
DTI - Export Marketing Bureau
Board of Investments
Philippine Economic Zone Authority
Philippine Exporters Confederation, Inc.
Industry Certifications
FDA-License to Operate
FDA-Certificate of Product Registration
GMP Certification
2. Sell to Customers
3. Invoice Issuing
4. Payments and Agreements
Telegraphic Transfer
Letter of Credit
Documentary Collection
Consignment
5. Freight Selection
List of Ports
INCOTERMS
How to Book a Shipment
6. Fillout Export Declaration
In the Philippines, an ED is a form submitted by the shipper to the Bureau
of Customs (BOC) to get the “Authority to Load “for the cargo to be allowed for
loading in the carrier.”
7. Export Clearances
Regulated by Commodity Agencies (CA) found in Appendix A
Prohibited products (found in Appendix A
Dogs and Cats, Monkeys, Exotic Animals, Poultry, Fishery Products, Coffee, Hazardous Wastes, Finished or Unfinished Wood Products,
Minerals, Rice, Artwork,
8. Process Authority to Load
Submit shipping documents to BOC.
Wait for assessment of documents.
Receive approval of Authority to Load.
Pay the following charges to the respective offices
9. Export Documentation
Bill of Lading or Airway Bill
Certificate of Origin
Export Declaration
Export Clearance
Commercial Invoice
Packing List
Insurance Policy
Post Loading Certificates
10. Customer Service
After the goods have been shipped out, the seller needs to ensure that buyers
repeat their purchase.