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Should the company use LC facilities even if it is cash rich?

Should the company use LC facilities even if it is cash rich?

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تم إضافة السؤال من قبل CA Divyesh Anada Divyesh , Finance Lead , CureFit Fitness LLC
تاريخ النشر: 2016/12/18
Chandan Kamdar
من قبل Chandan Kamdar , Head Financial Institution Trade Sales , Bank Muscat

Yes. LC is used for securing your payment on time. It is the safe method of payment.

Uma Rani N
من قبل Uma Rani N , Associate Manager - Finance , IFFCO

Yes. Availing Trade finance will ensure smooth flow of business transactions especially when the company deals with International suppliers.

shibu joseph
من قبل shibu joseph , Trade Finance Executive , Concorde – Corodex Group of Companies

Even if the company is financially sound LC should be established

Sayed Youssef Aly
من قبل Sayed Youssef Aly , Accounts Manager , Royal International Construction Member of United Al Saqer Group

Yes the company should use the LC facilities because it is an international payment and most of seller prefer this type of payment and it make the selling process easer if is between 2 parties in different countries

Raj Kumar
من قبل Raj Kumar , Sr. Relationship Manager , HABIB BANK AG ZURICH

LC covers risk for both the parties.

Mohsin Raza
من قبل Mohsin Raza , Foreign Trade Officer , The Bank of Khyber

Letter of credit is a mechanism which ensures that goods will be delivred to importer and exporter will get the payment in return.

khaled Mohamed abdulhakeem
من قبل khaled Mohamed abdulhakeem , executive secretary and administrative officer , bukhamseen

Yes. LC is used for securing your payment on time. It is the safe method of payment.

Allah Noor Tareen
من قبل Allah Noor Tareen , One of Industry in Pakistan even in world , Habib Bank Limited

There are a lot of possible reasons.  The corporate finance experts will talk about the cost of debt versus equity, the dilution of ownership that will occur if shares are issued and the cashflow pressure that debt brings.  And many other relevant factors.  All of these are true.

However....

There are two other things which are much more important.  One is the relative condition of the debt and equity markets at the time the company needs the money.  What is the fastest, easiest and cheapest (in the sense of the cost of making the issue, not the long term cost of the finance itself) way of raising the money?

The other - which is the most important of the lot - is the personal prejudice of the CEO or finance director.  Some hate debt.  Some hate equity. 

Oh, and don't forget the banks that advise on, run or underwrite the issue: their advice may or may not be influenced by which is better for them.

SUJITH CHANDRAN
من قبل SUJITH CHANDRAN , ASST MANAGER , THE FEDERAL BANK LTD

YES , inorder to secure its payments.

Noor Alhashimi
من قبل Noor Alhashimi , Director , First Abu Dhabi Bank

yes LC will secure the trade operation either if the company sell or buy and it will make the trade process go in safe and smooth manner

Arvind Arya
من قبل Arvind Arya , Additional Chief Engineer , Ajmer Development Authority

Here if the meaning of LC is "Line of Credit" which is normally arranged with banks by the company for the purpose of meeting out the urgent need of funds for day to day working, then answer is a big "NO". Because the rate of interest charged on LC will always be more than interest paid by the bank on deposits.

If this LC is related to international business transactions them the answer is "Yes". As it is always safe to have transaction through LC mechanism.

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