Global banking giant HSBC is suggesting that small- and medium-sized enterprises (SMEs) in Singapore consider using letters of credit (L/Cs) as they prepare for what may be an upturn in the global economy.

In an article in The Straits Times, HSBC Singapore's head of commercial banking says L/Cs should be considered to reduce the risks in international trade transactions.

Sources of finance

Tan Siew Meng reckons that with signs that the worst of the economic recession may have passed, many SMEs in Singapore are turning their minds to preparing for the return of economic growth.

She recommends several strategies for financing business activities utilising both internal and external sources of funds.

L/C benefits

Specifically, she argues that, whenever possible, SMEs should not rely on doing business on open account terms and L/Cs provide a "smart way" to make sure that the right terms and conditions are in place with buyers.

Using L/Cs provides a much safer way to do business, as there is a commitment to pay from a bank, not an individual company she concludes.

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