A financial controller of Malaysian Electricals, is loosing his patience with the bank charges being incurred on Letter of Credit transaction with customer in Egypt. The services of a good agent were secured last year and sales have been rocketing but many o the deals have been in the RM3k range and charges, including amendments, discrepancies, etc. have been as high as RM5k.

Furthermore, many customers are now enquiring about 60 - 90 days credit terms. He has heard that cash against document is staf fairly safe & cost far less than Letter of Credit. He is looking into organizing this for the troublesome sales territory, believing that invoices & transport documents sent directly to customers will be paid promptly.

About 200 African businesses are being supplied & this is mostly to small & medium sized companies.

Requirement:

(a) Discuss at the possible methods (4) that could be employed which could still provide a level of security against non-payment and evaluate the relative risk & likely cost of each.

(b) Explain how sight & term drafts work by using bank facilities & assess the relative security of each.