Page 28 - MAYBANK vs EPF

Trade Finance : Letter of Credit

A letter of credit is a guarantee that will be provided by bank to buyers and sellers in the event of

loss. It requires buyers to deposit the full amount due to an order with sellers which located in a
different country. Maybank helps some businesses to grow in the market through letter of credit

services which provides payment assurance to them.

Among the protections provided to the seller are seller will enjoy payment protection by showing
some compliant documents to obtain approval from the bank in order to confirm the letter of credit

as security. Maybank also allows seller to request pre-shipment financing before purchase the
goods from the actual supplier located in different countries.

The buyers also receive protection from the bank which it assures the buyer of getting payment if

the seller fails to deliver products or services using a standby letter of credit. The payment is a
penalty to the seller that unable to perform the agreement well or in other word can be described
as refund.

Advantages :

Seller

• The seller can feel assured of being paid if it delivers goods to its offshore customers.
• Letter of credit is the right method of being paid if the seller meets all the requirements

needed.
• The risk of non-payment is transferred to the banks.

Buyer

• Able to get refund from seller if seller does not meet the terms and conditions of letter of
credit with documentary proofs.

Disadvantages :

Seller

• Time consuming procedures. Seller has to present the compliant documents since it is
a conditional payment that needed seller to fulfil all the requirements.

• Time bound. This letter of credit has expired date where the buyer must return the goods
received promptly.

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