Amidst generally gloomy news about letters of credit (L/Cs) - that are by most reports becoming harder to obtain by buyers, sellers and shippers alike - a sign has emerged indicating perhaps brighter prospects ahead for the documentary credit.

A chamber of commerce in the UK says that the L/Cs it offers British businesses are in greater demand now because conventional trade financiers are becoming increasingly unwilling or unable to provide finance.

Added security

The chamber of commerce for south-west England, GWE Business West, has seen a 15 per cent rise in the past two months in demand by companies across the UK for their customers to use L/Cs to pay their invoices, according to a report in London's Financial Times (FT)

"They are looking for the added security that a L/C can afford them. Rather than invoicing [customers] they are not leaving that to chance," international trade manager at GWE Business West, Lyn Palmer told the FT.

Counterparty risk

The paper says the surge in L/C demand at the chamber of commerce indicates that tighter supply of credit insurance is forcing companies to insist that their customers use reliable payment methods.

It is also reckons that this move towards L/Cs is a sign that sellers are becoming more and more concerned about counterparty risk, thus indicating that the global financial crisis is spreading into the "real economy".

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.