Letter of credit important in trade in Dubai

25/05/2016 05:18 AST

The trade establishment complaints section at the Department of Economic Development-Dubai (DED) often receives complaints after deals are entered into between dealers.

In most cases, a trader enters into a deal with another trader to purchase a certain amount of goods against payment of an agreed sum of money. The agreement often calls for transferring the amount to the seller directly, who, in turn, dispatches the consignment of goods to the buyer, said Abdul Latif Al Marzouki, senior director of business awareness section.

"In many cases the seller receives the amount but fails to send the consignment. Or in other cases, the trader may send the consignment, but the goods may not comply with the specifications agreed up on. In certain other cases, the quantity agreed up on may not be delivered. Such incidents prompt the buyer to reach out to the complaints sections. "He comes to us to solve the problem claiming he was affected and incurred losses," said Al Marzouki.

Trade contracts and agreements have to be drawn up, warned Al Marzouki. They have to be rightly worded. Trade contracts for larger volumes of transactions require contracts to be verified. Both parties should be well aware of the contents of the contract and they should be properly signed and attested leaving no room for ambiguity. The DED has always endeavoured to enlighten traders about the mistakes that can happen.

"We are well aware of the losses a trader might incur when the deal is delayed or defaulted. The buyer will be the loser and his investment plans will suffer," he warned.

The best way to transfer money between traders is by opening a letter of credit at the bank. This will enable both parties to secure their transactions.

"When a letter of credit is opened, the buyer can deposit the amount at the bank and the bank and this will guarantee the rights of both parties." The bank will inform the seller that the buyer has deposited the money.

"Once the seller delivers the goods to the buyer and he is satisfied with the quantity and quality, the bank will transfer the due amount to the seller as per the deal. Whether the payment has to be made immediately after the goods have been delivered or after a certain period of time will depend on the clauses agreed up on by the two parties.

Letters of credits guarantee the financial rights of both parties, and help them from incurring financial losses in case one party violates the terms and conditions of the contract," he added.

Khaleej Times