I (Meaning and importance of Exports) Unit Structure

B) ADVANTAGES OF THE IMPORTER 
 
 
Letter of credit is beneficial to the importer. These are as 
follows 
1) Better Terms of Trade 
 
 
 
The opening bank provides credit facility to the importer. 
This helps the importer to obtain better terms of trade from the 
foreign supplier. 
2) Certainty of Shipment of Goods 
 
 
The exporter can not get any benefit under the letter of credit 
without shipping the goods and submitting documents to the bank, 
therefore, the importer is certain to get the supply. 
 
3) Overdraft Facility 
 
 
When the importer falls short of payments, he can take 
possession of the documents against overdraft facility. 
4) Funds are not blocked 
There is no need for the importer to block his funds by 
making advance payment to the exporter. 
5) Delivery on Time 
The importer can obtain required documents on time under 
the terms of L/C. Thus he can get the delivery of goods on time. 

---

186 
6) Better Relations 
 
 
 
 
L/C creates a better relationship between the buyer and the 
seller as all the terms are specified and both parties are protected. 
11.12.6 LIMITATIONS OF LETTER OF CREDIT 
 
 
The main problems or limitations of L/C are as follows 
1) Short Life 
 
 
Every letter of credit has validity period carries short life. It 
does not give sufficient time to the exporter for shipment of goods 
and submission of documents. 
2) Problem of Weight Units 
 
 
Weights and measures are different in different countries. 
Thus disparity often arises through misinterpretation of weight units.