Many exporters believe that Letters of Credit actually extend terms to their prospective buyer abroad. Most issuing banks require "full-face" collateralization. Notwithstanding the fact that the exporter intended to provide terms, the bank issuing the L/C did not. Sufficient funds in your client's account will be needed to collateralize the L/C.
To make matters worse, assume your client does not have sufficient capital to collaterlize the L/C. Funds will have to be borrowed at the prevailing local - and usually high - interest rate. Add issuing and/or confirmation fees to those high (possibly double-digit) interest rates. The cost of your product increases significantly. Your competition is selling above your invoice price, but is offering open account terms. Think you will win the deal? Better think again.
Enhance Overall Competitiveness by selling on Open Account
Contribute to Bottom Line
Improve Cash Flow
Lower Loss Reserves
Increase Collateral Base & Borrowing Power
Consider Securitizing Your Accounts Receivable Portfolio