(11)Line of Credit
An American importer meets with a Taiwan exporter to discuss terms of payment.
Importer : Thank you for meeting with me this morning. We've been getting together quite often lately. My company is very pleased with the deal I've been able to negotiate.
Exporter: Yes, we've been able to undersell the competition with our new hearing device.
Importer: Now that we've settled on a price, we need to discuss terms of payment. Is it necessary to do anything special in the way of payments for international trade?
Exporter: You could have the goods sent on consignment.
That way you wouldn't have to pay until you actually sold the hearing devices.
Importer : But wouldn't we get a better deal if we bought the goods outright? We'd expect to be able to obtain a reasonably large reduction in price.
Exporter : Yes, you would; -and we'd prefer to have the money up-front, so we can pay off our transistor supplier.
Importer : Has the supplier indicated a need for money?
Exporter : Oh, no. They're an enormously well-financed organization. It's just that we'd get a discount if we paid before the fifteenth of the month. Importer Can we pay you by check?
Importer : Can we pay you by check?
Exporter : The customary method of payment in international trade is the letter of credit. A local bank will grant you, let's say a letter of credit line of $250,000. You would then need to pay one half the total invoice in local currency. The balance would be payable upon receipt of the goods.
Importer : How can I open a letter of credit?
Exporter : You would need to describe the tr