A glove manufacturing company operating on a payment model of 70% advance payment based on a Letter of Credit (LC) ensures a secure financial framework for both the buyer and the seller. This model works as follows:
Advance Payment: The buyer provides 70% of the total payment upfront, ensuring the manufacturer has sufficient working capital to procure raw materials and begin production.
Letter of Credit: The remaining balance is secured by an LC issued by the buyer's bank. This guarantees payment upon fulfillment of agreed conditions, such as the shipment of goods or submission of required documents.
Advantages for the Manufacturer:
- Reduced Risk: Secures a significant portion of payment before production starts, minimizing financial risk.
- Cash Flow: Ensures consistent cash flow, enabling smooth operations and procurement.
- Trust: The LC acts as a reliable mechanism for receiving the remaining payment after delivery.
This payment structure is particularly favorable for high-demand industries, such as gloves manufacturing, where large orders and international trade are common. It fosters mutual trust and financial security between the company and its clients.
