International Trade Finance - Ensuring Payment with Letter of Credit

How can Acme Industries ensure that the Chinese company is paid only after the goods have arrived at their warehouse in the United States?

What financial instrument can be used to guarantee this transaction?

Final answer:

A Letter of Credit, also known as 'Acceptance Credit', is issued by Acme Industries' bank to ensure that the Chinese company is paid only after the goods arrive at Acme's warehouse.

Explanation:

When Ian seeks to ensure that the Chinese company will not be paid until the goods have arrived at Acme's Industries warehouse in the United States, the financial instrument that Acme's bank would typically issue in this scenario is a Letter of Credit. This is a guarantee from the bank that the seller will receive a specified amount of money within a specified time. In this case, it helps in ensuring that the payment to the Chinese company is made once the expected delivery at Acme's Industries warehouse is confirmed.

Unlike an international acceptance document or a notary stamp and seal, the use of a Letter of Credit also known as 'Acceptance Credit' in international trade scenarios like this one provides a level of assurance to both parties. The seller (Chinese Company) is assured of getting paid as long as they comply with the terms of the Letter of Credit. The buyer (Acme Industries) is assured that their payment will not be made until the goods have been shipped or delivered as promised.