Factors Contributing To The Use Of Commericial Letter (S) Of Credit On International Business Transaction(S): A Case Of Manufacturing Industries In Kenya

Abstract

The use of letters of credit has become a very important aspect of international trade due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally. The LC therefore helps both the importers and exporters in the sense that the importer will be waved the liability of incurring bad debts and on the other hand the exporter is saved the fear of losing his money when dealing with the importer directly. It is therefore a hedging and also the most sophisticated payment. This study attempted to establish factors contributing to the use of Letter of credit in international business aspiring to address the objectives which touches on the impact of exporter/importer standing bank credibility and its association to using the LC, explore the extend on the bank inefficiencies and the central bank policies contributing to the LC ,how the bank financing to the company contributes to the application of the LC method and finally ascertain which risks and challenges are a major concern to pushing the use of LC. The study targeted forty Companies from the manufacturing sector in Kenya considering industries on areas of Plastics and Rubber, Chemicals and Allied, Building, Mining and Construction, Food and Beverages and Pharmaceuticals and Medical Equipment