A US-based banker is suggesting that with liquidity still tight in the banking sector, importers could consider turning to transferable letters of credit (L/Cs) as an alternative form of financing.

This alternative may offer several benefits, including lower fees and it allows importers to meet orders that exceed their usual credit limits.

Financing trends

Writing in The Wichita Eagle, executive vice president of international banking at Intrust Bank, Anna Anderson, notes that for many years, the commercial L/C was the preferred tool for trade financing of consumer goods from developing countries.

She then points out that before the credit crunch, trade financing had been increasingly transacted on an open account basis.

New alternative

Now, with L/Cs hard to come by and traders wary of open account terms, Anderson reckons one alternative could be the transferable L/C.

She goes on to suggest that some or all of the L/C would be transferred to the foreign manufacturer.

Opportunities

The Kansas-based banker says that by using this tool, importers could purchase products without a bank credit line because they are using a trading partner's credit.

Anderson describes the transferable L/C as an excellent option for importers with an opportunity to fulfil orders that would exceed their normal credit limit.

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