As PrimeCare Inc has not previously dealt with HealthBridge Ltd, there will not be a basis for trust between the parties. PrimeCare is likely to be concerned about credit risk. HealthBridge may be concerned that if it pays PrimeCare for the goods upfront, it may not receive them.

Therefore, it may be appropriate for HealthBridge to arrange for a letter of credit in favour of PrimeCare through its bank in Ghana. This bank then selects a US bank to advise the terms of the letter of credit to PrimeCare. Under the letter of credit, payment to PrimeCare would be guaranteed by the bank on provision of the necessary shipping and title documents.

As soon as PrimeCare ships the medical supplies to HealthBridge, it will present the necessary documentation providing legal title to the goods to the advising bank. Payment is then requested from HealthBridge’s bank in Ghana. After checking the documents, HealthBridge’s bank will release the documents to HealthBridge, giving legal title to the goods in return for HealthBridge’s payment to the bank. This payment is passed to the seller through the advising bank.

In this way, a letter of credit ensures that the seller receives payment for goods shipped and the buyer only pays against evidence of shipment.

A letter of credit is likely to be preferred by PrimeCare over a documentary collection, which would ensure that goods are not transferred to HealthBridge without payment, but it does not guarantee payment. If HealthBridge fails to pay, PrimeCare would still have title to the supplies but would be left having to find an alternative buyer for the shipment return.

HealthBridge may also wish to avoid the currency risk related to the contract being priced in US dollars. This could be hedged using a forward FX contract, which its bank could arrange.