Question

Consider that you are an exporter in the USA having annual sales revenues of $35 million and you are negotiating a potential sale with a customer in Malaysia for specialized machinery. The value of the potential sales contract is $175,000. You have dealt with this customer on the last 2 occasions and have been paid in advance on those occasions. Other than that, you have no other knowledge about your customer including their credit worthiness. Having lost the sale on the last 2 occasions, your competitor is inclined to offer very favorable terms of sale and payment for the present contract under negotiation. What terms of payment would you offer? Justify your answer. What factors will you consider when making the decision? Explain briefly how you would execute the terms of payment you choose to use.

Answer 1

Answer:-

According to the data gave, since the client's financial soundness isn't found out and the estimation of potential deal is additionally enormous, I.e $175000, consequently it is critical to make sure about the payment for the agreement. Subsequently letter of credit is the kind of terms of payment that must be offered to the client. Letter of credit is the payment term in which payment is gotten legitimately from the bank without stressing over the payment default of the client. This implies payment to the vender is sheltered since it is gotten from the bank.

In letter of credit, both purchaser and dealer contact their separate banks for opening letter of credit. Merchant gives the transportation archives, for example, receipt, receipt of merchandise note and so on to the dealer's bank and vender's bank presents every one of these records to the purchaser's bank.

Purchaser's bank makes payment to the merchant's bank on receipt of reports which is additionally given to the vender. Purchaser has terms with purchaser's bank that all the exceptional will be cleared inside a predefined timeframe, for example, 90 days or 180 days.

This is the general process that is followed in letter of credit, making it a protected and dependable sort of payment term among vender and purchaser.

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