Any advice on arranging a Letter of Credit?

My partners and I have licensed a product from Canada. It’s a medical device and we are raring to get going. In our agreement, we will make payment 90 days from the time we place the order using a Letter of Credit.

One of my partners is responsible for our banking relationship, but I want to make sure my understanding is correct, so I am seeking advice or suggestions.

When does the bank actually transmit the money to the supplier in Canada? Our agreement with the supplier states that this will be done on theb90th day from the time we place our order with them. So, does this mean that the bank will only release the funds on that date if it has evidence of a satisfactory transaction. For example, do they need confirmation from the buyer (my team)? Or should we give them a copy of the invoice that our supplier generates from our original purchase order?

Terms for a LOC can vary widely…

When the terms of the LOC are fulfilled.

Again, it depends on the terms of the LOC. “satisfactory transaction” is not a legal term btw.

You go to your bank for a LOC. They ask you for the terms (should be part of your contract with your supplier) and charge you a fee. The bank now shoulders the responsibility of payment when the terms are fulfilled, you are not a direct party to this transaction anymore. The other party is the exporter’s bank. The banks handle this transaction among themselves. Once the exporter has shipped the goods he will submit proof to his bank. The bank determines that all terms of the LOC have been met and releases the money.

Edit: there must be youtube videos by banks for this btw, it’s good business for them

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Although safe a L/C can be tricky. Everything depends on what’s written in the L/C. Some are just not accepted by the seller due the wording and specific terms.

Does your ‘medical’ device need a certification or approval in Taiwan?

Thank you

Yes, this primer is helpful

This is what I am specifically curious about. So, the supplier will submit some documentation to their own bank (in Canada in this example) to demonstrate the terms of the LOC are fulfilled.

In our case, we have sublicensed to a partner in Vietnam and we want to ship the goods from Canada directly to Taiwan (for us) and to Vietnam (our sub-licensees). Two shipments out of Canada as part of our single (consolidated) order. The Canadian bank and the supplier would have presumably worked out what is needed to show this is done so they can have the funds released. Right?

Yes, but it’s a Class 1 device (non-invasive) and will only take 2 weeks for regulatory approval by the TFDA. This is currently underwayna dseems to be distinct from the fulfillment process

Thank for this. I will focus my research on how these terms should be written for our industry

The supplier will go for the terms that are most favourable to him. You will have to push for the terms to be favourable to you, like solid proof of actual shipment (or at least fair for both). Part of the negotiation.

It really is about how the contract terms are written. Being your first time and thus likely very important not to get shafted i would really suggest hiring a lawyer to write the contract and do that paperwork. Fees range but i bet in taiwan its 10k or under. A worthwhile fee to make your business run and learn lots.

Edit to add. In export i always aim to make sure the terms of shipment is FOB. Basically you are responsible to deliver to the port. Once the ship sails, your responsibility is theoretically over assuming products are correct etc. It depends industry to industry and contract to contract, but FOB woul really cause less problems and the LC would (should) be smoother for the exporter.

Are you referring to the Licensing Agreement I have with the supplier or to the Letter of Credit? Certainly, there are articles in the Licensing Agreement that spell out how we order, settle payment, handle returns, etc.

I would not have expected to ask a lawyer to draft an LC. I’m looking up LC templates and also asking the supplier to provide what they have used for other markets.

We agreed that the goods would be FOB Canada where the supplier is located. They are a small company, so we agreed to sort out the shipping from there to Taiwan and our other markets. I expect the bills of lading will suffice for proof of fulfillment on their end.