International trade has significantly picked up pace in Thailand over the years. Businesses in this country typically trade with partners in China, Japan, the United States, and the European Union. There are several important documents needed in Thailand to carry out international trade transactions. Letter of credit is one of the most important ones among them. It is a document that is issued by the bank guaranteeing that the payment of the buyer will be received in time by the seller. In case the buyer defaults, the bank must make it up to the seller. Letters of credit in Thailand are expansively used as a payment method for international transactions and are accepted collectively around the world.
LETTER OF CREDIT IN THAILAND
While there are many types of letter of credit, Standby Letter of Credit is the one used more commonly in Thailand. It aids in conducting international trade even with non-financial institutions. The bank investigates the credentials of the party seeking the letter of credit and if everything is fine, issues the Standby Letter. It is generally valid for a year. This LC provides the payments if the buyer fails to make it to the seller. It kind of provides compensation when things fail or go wrong. The onus of proving the failure is on the beneficiary.
LETTER OF CREDIT PROCESS
The steps involved are.
- The buyer approaches the bank and requests an issue of a letter of credit.
- The seller’s bank checks the authenticity of this letter and approves the same and conveys it to the seller.
- The lading bill is generated and sent to the bank once the goods are shipped.
- Based on it, the bank reaches out to the buyer to disclose the documents and proof.
- Finally, the buyers pay to the issuing bank which in turn forwards it to seller’s bank.
DOCUMENTS NEEDED FOR LETTER OF CREDIT EXECUTION IN THAILAND:
ü A bank account that is in the name of the relevant business
ü Valid and up to date trade license in the name of the relevant business
ü Import registration certificate
ü Valid and up to date trade tax identification number
ü VAT certificate
ü Indent / proforma invoice
ü Insurance cover note
ü Export letter of credit (in the scenario of back to back LC)
ü IMP form that is both filled and signed
ü Charge documents
ü Credit report of the exporter
ADVANTAGES OF LETTER OF CREDIT
For the seller, the advantage is that he has the buyer’s bank obliged to him to pay for the goods. Also, he can approximately know the payment date for goods.
For the buyer, he can control the time of shipment and can be assured about the documentation being done perfectly. He can demonstrate his solvency.