How Letters of Credit Can Help Your Business in Unstable Markets

Rising costs and ongoing supply chain disruptions are common and constant challenges in business today. From persistent port bottlenecks to soaring interest rates, current market conditions delay shipments, increase lending costs, and necessitate quick pivots to save profits. Businesses must take proactive steps to preserve bottom lines and obtain reliable deliveries. Letters of credit are a way to accomplish these goals.

Letters of credit are an asset-based credit structure that provides a bank guarantee of payment. It encourages trust between sellers and buyers while facilitating growth amid volatility. The many forms of letters of credit (import letters of credit, export letters of credit, and standby letters of credit) can protect your business against supplier risks and offer significant cost savings.

Discover how letters of credit streamline supplier relationships and bypass interest costs so businesses can expand supply lines with more urgency and less uncertainty.

1. Build trust with new suppliers

When supply disruptions strike and current suppliers face delays, businesses must seek new suppliers to fill the supply gap. However, new suppliers often place a heavy cash burden on new business relationships. With no payment history, suppliers often require upfront payment before shipments arrive to build trust. Upfront payment can be required when products are ordered. It can take as many as 120 days before products arrive, yet the business can’t make money back until they can sell the product. Also at risk are suppliers who may renege on delivering an order.

Letters of credit reduce the risks associated with doing business with new suppliers and offer an alternative to advance payments. They provide a bank guarantee of payment if buyers default. With this assurance, suppliers know they won’t be cheated and can make sales on credit. By allowing businesses to pay when goods arrive, letters of credit shorten the time between product payments and customer purchases—preserving crucial liquidity.

2. Avoid high-interest payments

In a world of rising interest, securing a loan to pay for goods or products months before potential sales means extensive interest charges. With interest climbing to 7% or higher and accumulating when the loan is originated, it is important to weigh your options.

A letter of credit allows businesses to pay low annual fees and no interest for the duration of the product transport. For example, the typical fee for a $1 million letter of credit is 2% per year. The cost can be even lower for businesses with more substantial credit and long-lasting relationships with bankers.

3. Protect against the risk of fraud

Buyers face a real risk that suppliers may never deliver the purchased products. Without a binding guarantee of good delivery, businesses could lose millions of dollars and face product shortages.

Letters of credit eliminate this danger by providing fully-customizable transaction terms. Businesses can use a letter of credit to protect against the risk of non-delivery. Buyers can include any terms they negotiate with sellers, including legally-binding conditions that stipulate they are only obligated to pay when shipments arrive.

Driving real-world business success: a customer highlight

Shipping delays and high borrowing costs threaten profits and customer relationships. Still, letters of credit provide security in a world of uncertainty. Take the example of one long-term First American Bank customer who used a standby letter of credit to build supplier relationships and expand their sales volume.

In the aftermath of the pandemic, like so many businesses today, this importer faced supply chain obstacles and an immediate need for new overseas suppliers. As a customer, our team quickly created a personalized solution for this bump in the road. Under the guidance of First American Bank, the customer was able to accelerate growth by using a standby letter of credit. The business was still the primary payment source, but the bank became a backup source in case of a default.

With this asset-based credit solution, the customer was able to fill supply chain gaps by obtaining products from new suppliers without considerable cash advancements and interest payments.

Reliable financial partners in an unpredictable world

Though the current supply chain obstacles may fade in the future, new obstacles will always arise. Businesses must quickly shift supply lines across the globe and deploy capital efficiently. A long-term relationship with First American Bank can help your business through the current crisis and guide you through any obstacles you may face down the road.

Our business experts are here for the long haul—helping you through growing pains and market shocks. First American Bank specialists will enable flexible pivots as your business expands with financial solutions designed to help you scale in the best and worst circumstances.

Continue business growth despite supply chain roadblocks and price increases.

Let’s get in touch

You May Also Like
How First American Bank Helped This Bottle Manufacturer Drive Success

Written by: Sarah Eikenberry, Vice President, Commercial Lending, First American Bank Nearly all new businesses face similar struggles as they push off the ground. Managing cash flow, balancing steady growth

Read More
Prepare for Business on the Global Stage

Author: Bastiaan Van Den Berg, Senior Vice President, International Banking “98 percent of all U.S. companies that export goods and services are small businesses.” Small and mid-size organizations account for an

Read More
Three Products that Protect Against Fluctuating Market Rates

Written by Steve Eikenberry, Senior Vice President, Commercial Lending With the recent increase in interest rates and the prospect of the Federal Reserve raising short-term rates by up to 1.75%

Read More
Understanding Volatility in an Era of Economic Uncertainty

Written by John O’Rourke, Vice President, Private Banking and Wealth Advisor Rapid changes in asset prices—otherwise known as volatility—are an ever-present, often anxiety-inducing force in all markets. Yet, when considering

Read More
Other Posts
One Manufacturer’s Journey to Success Using Smart Lending Solutions and a Personalized Partnership

In 2008, a small medical device manufacturer with a unique niche came to First American Bank seeking guidance. Specializing in highly specialized sterile procedures, the company wanted to expand their

Read More
Inflation is Here. Plan Ahead and Protect Your Business With These Three Strategies

Author: Brian Hagan, First American Bank Florida Market President   If you’re worried about the effects of inflation and resource scarcity on your business, taking early action to maintain profitability

Read More
Leaving Your Business in Good Hands: A Guide to Selling to Your Employees

Written by James Walrack, ESOP Specialist   Selling your business is a complex and often emotional process that is best not rushed. Even if you’re in the early stages of

Read More
Four Questions to Ask Yourself When Thinking About Selling Your Business

Written by John O’Rourke, Vice President, Private Banking and Wealth Advisor   After spending years, or even decades, building your business from scratch, the time will likely come when you

Read More

Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.