Letters of credit
Documentary letter of credit (L/C) is a transaction accordingly to which a bank opening an L/C (issuer-bank) is obliged to pay to a beneficiary (seller, exporter) by order of its client (buyer, importer) a certain sum in agreed currency if the beneficiary will afford documents provided by conditions of the L/C in time.
In this case Bank is acting as intermediary between buyer and seller because the payment is made through it after succession of operations made. At present time L/C is the most prevailed and optimal form of settlements when foreign trade transactions are made, meeting maximally interests both of seller and buyer and considerably reducing possible losses.
The main advantages of using L/C are
For Importer
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No down payment;
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Transfer of funds to exporter only after fulfilling all conditions indicated in L/C and inspected them by banking experts;
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For foreign counteragents the possibility of payment by L/C is an additional confirmation of the solvency of potential buyers;
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Buyer can achieve more profitable conditions of delivery and payment of goods by guaranteeing payment by L/C;
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Chance to use experience of bank experts during preparation of external economic agreement in the part concerning payment conditions;
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L/C is giving possibility of receiving trade credit from an exporter with delay of payment conditions which is always profitable for an importer than usual bank credit;
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The operation complies with international “Uniform rules and customs for documentary L/C“ developed by the International Chamber of Commerce.
For Exporter
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Additional guarantee of payment of contract;
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Guarantee of receiving of export gain in time;
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Possibility of additional lowering of insurance risks;
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possibility of receiving financing provided accordance to the bank documents fully suitable to conditions of an L/C confirming shipment of goods;
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The operation complies with international “Uniform rules and customs for documentary L/C” developed by International Chamber of Commerce.
