How Letters of Credit Work (...and Why They Sometimes Don’t)

True or False? A well-crafted letter of credit ensures that suppliers who deliver agreed-upon goods in the agreed-upon timeframe will receive prompt payment in return.

If you don’t know the answer, it’s time for a review of letter of credit basics!

While a letter of credit may appear to be an absolute assurance that a bank will pay your customer’s debts should they run into financial trouble, what you’ve actually got is a very strict set of requirements you must meet to receive payment. This common misconception has fooled many credit managers into thinking that they have credit protection only to have it will fail just when it’s needed most!

The fact is, many credit managers receive only a basic orientation in letters of credit and are often left frustrated and confused when the letters of credit don't really work the way they thought. You may be among them.

Join IOFM and credit expert Buddy Baker in this webinar recording that outlines the fundamentals of both commercial and standby letters of credit. Using real-life examples, you’ll gain an in-depth understanding of the steps in the life of a letter of credit, identifying pitfalls along the way.

During this recording you'll learn how to avoid the most common mistakes, and why letters of credit might not get paid. You’ll also learn about standard and silent confirmation and how to get paid in hours instead of weeks.

You’ll also learn:

• How banks determine whether or not to pay their letters of credit
• How to avoid discrepancies in letter of credit documents
• The circumstances under which bankruptcy of a customer can prevent payment of their letters of credit as preferential payment
• How to negotiate language that provides both solid protection and quick payment
• How rules and regulations—like UCP—can affect your ability to get paid.

Featured Faculty

Walter (Buddy) Baker
Managing Director
Global Trade Risk Management Strategies

Walter (Buddy) Baker has over 30 years of experience in international trade finance. In May 2009 he joined Fifth Third Bank as the head of their International Trade Services Sales team. Fifth Third is one of the 20 largest banks in the US and provides a full range of risk mitigation and financing products for exporters and importers.  Prior to Fifth Third, Buddy worked for Atradius Trade Credit Insurance, ABN AMRO Bank, Bank of America, Wachovia Bank, and The First National Bank of Chicago.

Buddy is a recognized expert in trade finance and author of numerous magazine articles and the books Users’ Handbook to Documentary Credits under UCP600, Documentary Payments & Short-Term Trade Finance, and The Regulatory Environment of Letters of Credit and Trade Finance. He owns the consulting firm Global Trade Risk Management Strategies, which specializes in educational training, and makes frequent presentations for national associations of exporters, importers, bankers and lawyers.  Mr. Baker serves as a member-at-large of the National Letter of Credit Committee of the International Financial Services Association and is actively involved in establishing national and worldwide standard practices for LCs, such as the recent revision of the Uniform Customs and Practice for Documentary Credits (referred to as UCP600), the official ICC guide for examining letter of credit documents, called the International Standard Banking Practices for the Examination of Documents under Documentary Credits, the eUCP supplement to the UCP dealing with electronic documents, the International Standby Practices, and Article 5 of the Uniform Commercial Code. He acts as an advisor to the Wolfsberg Group, an international group that includes most of the largest banks in the world whose purpose is to set standards for combating money laundering, and to the Institute for International Banking Law and Practice.  Buddy also serves on the Board of Directors of the Association of International Credit and Trade Finance Professionals (ICTF), a multinational association of export credit managers. 

Buddy earned his undergraduate degree at Yale University and his MBA at Northwestern.

Continuing Education Credits Available!

AP Certification
Receive 1.5 CEUs toward APM, APS, or APD recertification! The Accounts Payable Certification Program is designed to establish standards for the profession and recognize accounts payable professionals who, by possessing related work experience and passing a comprehensive exam, have met stringent requirements for mastering the accounts payable body of knowledge.

This webinar was recorded on March 16, 2011
Product ID: 11WR02R