Asian exporters are increasingly asking for letters of credit (L/Cs) to guard against the increasing risk of payment defaults caused by the global economic downturn, according to a report in an Indonesian daily paper.

The Jakarta Globe quotes the Royal Bank of Scotland's (RBS's) head of global transactions for Asia, Alan Goodyear, and presents his argument that as non-guaranteed terms such as open account become less attractive, so demand for L/Cs is growing.

Creditworthiness

According to Goodyear, disputes between buyers and sellers have risen dramatically, making non-guaranteed open account payment methods less attractive.

"When times are good, people are able to pay through open accounts and trust each other, but when times are bad there are difficulties in determining the credit worthiness of your counterpart," Goodyear said in an interview.

Agreement

An official at the Indonesian Employers Association (Apindo) apparently agrees with the banker. Most Indonesian exporters had preferred open account to L/C terms, the official told the English language daily.

He argues that an extra risk driving Indonesian traders towards L/Cs is that they are losing business from regular customers and shifting towards new markets and unfamiliar customers.

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