Credit Letter Tips

Credit letters are the commercial documents which are issued generally by financial institution. This type of letter is primarily used in trade finance. The origin of the term comes from the word 'accreditation' which is a derivative of the Latin word 'accreditivus' which means trust. Almost all of the credit letters are irrevocable that means they cannot be amended or canceled without prior agreement of the beneficiary. It acts as a legal document also. The language of the letter should be very clear and far away from confusion. It is used in international transaction to eliminate the risk of unfamiliarity with foreign country, customs or political instability. The credit letters are of much worth and can ruin a company if not drafted correctly. You should be very careful in selection of words. Do not use flowery language. Read and reread the letter before sending or issuing it.

Letter of credit is often used in international transactions to ensure that the payment will be received. As the laws of each country can be different, it is difficult to draft a credit letter.

Let us see what the things are, apart from the legalities which are to be remembered while drafting a credit letter.

  • Maintain a courteous tone all through the letter, no matter what the circumstances are. If you are writing a letter of credit in order to deny or discontinue or to begin the collection of the credit, you need to maintain a professional tone. You should explain the reasons in the letter for whatever action you are taking.
  • If the credit letter is for the denial of credit, be sure that you leave the door open for future transactions. Your letter of credit should not lose a customer.
  • In cases where the payment is overdue for a month or so you and encourage the client to contact you personally in order to discuss the lapse in the payment. Do not be harsh in your tone but at the same do not let the customer feel that you are unprofessional.
  • If the payment is overdue for more than two months, let the customer know about the penalties he will have to bear. Be very clear in your letter about mentioning the amount to be paid.
  • Be brief in drafting a credit letter. Lengthy credit letters are never entertained. They lose the effect and serious tone is dissolved in big and long sentences.
  • Be confident and slightly assertive while asking for the payment. Do not make your letter too rude, there is a risk of losing the person as a customer.
  • Assure the person that the information is purely confidential and that whatever the reason is (in case of non payment) will not be disclosed.
  • If the client is unable to meet the current payment plans, you can offer alternative methods.
  • Be sure that your letter does not hamper the good will and trust for your company.
  • Keep a copy of your letter with you.
  • If you are not ell versed with the content of the letter you have written, it is always good to get it checked from some one who is experienced regarding credit letters.
  • You can ask the client to verify when the letter is received.
  • Follow up is necessary. Be specific about the date by which you expect the payment. If the client does not revert back, a regular follow up will sort of pressurize the customer.

Maintain the decorum of a formal letter by not using bold colors, stylish fonts and designer borders. As a company, organization a credit letter must be written on a letter head with a signature of a concerned person.

See more types of credit letters:

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