Exports are given priority in India and enjoy lot of incentives. However, the major problem lies in the process of realizing them. Unfortunately, exporters have to approach multiple organizations for seeking sanction. Each organization prescribes its own exclusive method of documentation as well as procedure form the stage of submission of claim till sanction. The documentation and procedures are diverse with each incentive provided. This is not the end of their problems. Incentives are available at post-shipment stage but they are connected with the documents generated at the time of shipment. If exporter does not pay adequate care and attention at the time and stage of export shipment in providing complete and adequate information in the documents in a proper way, their claims for export incentives are adversely affected. It is essential to the exporters to plan carefully in respect of incentives, even at the time of shipment, though their benefits are available only after completion of the shipment.
In the absence of adequate planning, it will upset their fund flow and equally the total realization may not be remunerative for effecting exports. Exporters have to draw a suitable plan of action for claiming incentives in a timely manner to avoid delays and cuts in realization. Exporters have to understand the different procedural formalities, connected with multiple and diverse agencies. This would ensure proper compliance for availing of full benefit of incentives. In this area, Government has to rationalize the incentives by opening a single window approach for sanction of multiple claims.
EXPORT LETTER OF CREDIT
An importer issues an import letter of credit with the exporter being the beneficiary. The same letter of credit, when received by the exporter’s bank, becomes an export letter of credit. So, both the import and export letters of credit are materially same, it’s just the perspective which is different. The exporter needs to fulfil the terms and conditions and submit the required documents as mentioned in the letter of credit before he can receive payment.
ADVANTAGES OF EXPORT LETTER OF CREDIT
It reduces the credit risk as the issuing bank is liable to pay even if the importer defaults. Export letter of credit can be tailored to the needs of the exporter, hence it provides flexibility in terms and conditions as long as they are fair and legally binding. Since the exporter needs to submit documents as proof, an export letter of credit enables the exporter to receive the payment before the shipment has reached the importer. This capability improves the cash flow of the exporter.
DISADVANTAGES OF EXPORT LETTER OF CREDIT
Although the exporter is protected in case the importer defaults on payment, he may still face credit risk if the issuing bank also defaults. He can get additional protection by getting a confirmed letter of credit where the receiving bank guarantees the payment if issuing bank defaults. This will add to the cost of getting a letter of credit, which is already high.