Advantages and Disadvantages of Documentary collection & Credit Letter

Advantages of Documentary Collection to Seller

-The Seller has control over the title of the goods.(Document only transfer to the buyer upon payment.

-Upon arrival the goods, the seller can expect the buyer to pay to take the possession of the goods.

-Charges are lower than documentary credit.

Advantages of Documentary Collection to Buyer

-The buyer does not have to pay until arrival of the documents of title and the vessel carrying the goods.

-When the reputable and financially strong, he may negotiable for longer credit term,(Documents against acceptance).

-Charges are lower

Advantages of Letter Credit to Seller

-the seller on the strength of the letter of credit may arrange with his bank for a pre-shipment finance or packaging credit

-the seller may also arrange for the bill be discounted with his bank

Advantage letter of credit of buyer

-the buyer can feel at ease that the seller will comply with term and conditions

-in order to meet demand during festival seasons, the buyer may stipulate the latest shipment date to ensure that the goods arrive on time

-the buyer requires the goods to be spread over a period, he may arrange with the seller for periodic shipment to meet with his requirement

-the buyer is reputable and financially strong he may negotiated with the seller for the letter of credit to be under deferred payment basis

-in the case of revocable LC, the buyer ?issuing bank may revise, amend or cancel the letter of credit at any moment without any notice

Disadvantages to Seller

- The seller has the shoulder the consequences in the events that the buyer unable to pay and take up the goods

- The goods have already been sent to the foreign country ( the seller has to find another suitable buyer or sell at a discount.

- There may be circumstances which may prevent or delay the buyer from paying, even though he may be financial sound.

Disadvantages to buyer

- The buyer may find that the goods are defective or not matching the right quality or quality

Disadvantages of letter of credit of seller

-the seller has to posses a good working knowledge of the letter of credit system in order to comply with the various requirements

-if there is any discrepancy or a failure to comply with certain term an conditions the seller may not be able to secure payment or may face undue delay

-under the revocable letter of credit the seller face risk as the letter of credit can be revised amended or cancelled at any moment without any prior notice to him

Disadvantages of letter of credit of buyer

-under the irrevocable letter of credit the buyer may not revise, amend or cancel except with the concurrence of the seller (and the issuing bank)

-the buyer bare the charge of opening the letter of credit and any other likely charges if the seller is unscrupulous, he may ship inferior goods but present the requisite documents and strictly comply with the term and conditions of the letter of credit to secure payments,

-by the time the buyer discover the truth payments would have already been made