Types and advantages of Documentary letter of credit for international payments

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Documentary letter of creditStand-by Letter of CreditBank guarantee
 

International monetary settlements with the help of a documentary letter of credit

Letter of credit is an agreement on payment a specific amount by the bank to the party providing the goods or services under the condition of timely dispatch of the goods or services confirmation. In the context of the current market this tool is the safest and most effective means of trade financing. The importers and exporters' risk minimize when applying this type of settlement.

Documentary or commercial letter of credit is recognized as one of the favorites not only in Russia but also in international payments. Its main advantages are the following:

1. Provision of confidence. The exporter receives payment for provided goods / services in the defined terms due to the obligation of the issuing bank, and regardless of the funds receipt date to the bank from the importer.

2. High level of the importer's interests protection. After opening a letter of credit, the importer does not risk own funds contrary to other advance payments. The conditions of issuing the documentary letter of credit may include provision of documentary evidence of the independent third party, such as insurance companies, various trade inspections.

3. Uniform rules and provisions of issuing documentary letters of credit. General provisions are recognized by the international community and clearly specify the obligations of each of the parties of the letter of credit.

Choosing this calculation instrument, it is necessary to determine the optimal conditions for its issuing:

- type of the letter of credit,

- payments conditions,

- the list and the conditions of documents preparation, necessary for the exporter to receive the monetary funds,

- time frames for closure and provision of respective documents.

How the payments is done

1. The guarantee of a fair deal. There is a condition under which the bank does not make payments on the opened letter of credit on behalf of the importer until it receives and studies all the necessary documents mentioned in terms of the concluded contract.

2. In case of discrepancy of documents or standards, mentioned in the terms and conditions of the letter of credit, the bank as an intermediary will refuse to pay money for goods or services on behalf of the importer.

3. Firm guarantee of settlements on behalf of the importer if all the documents, specified in the letter of credit conditions, are provided to the bank.

4. The exporter may receive the payment for goods / services immediately after shipment / provision of services. It happens only if this condition was discussed when opening of the letter of credit and if all the respective documentary evidence is provided.

5. Standard documents confirming dispatch / shipment of goods are the bills of lading and different documents of title depending on the method of delivery of goods to the importer.

The Procedure of payments

1. The parties involved in the agreement (the importer and exporter) come to a decision to apply the letter of credit payment method.

2. The issuing bank opens the letter of credit on the request of the importer and after the agreement from the exporter. In other words, the bank undertakes the responsibility to transfer a specific amount of money to the exporter. This happens after the provision of documents of a proper form within a specified period.

3. The issuing bank informs the advising bank about the issuance of the letter of credit.

4. The advising bank informs its client, the exporter, about the issuance of the letter of credit.

5. The exporter dispatches the goods and prepares all the necessary documents. Then he gives the documents to the advising bank, and the advising bank passes them to the issuing bank.

6. The advising bank receives the documents and performs the comparative check with the terms and conditions of the opened letter of credit. If they meet these criteria, the bank makes payment to the exporter on behalf of the importer.

7. Later the documents are passed to the importer through his bank for receiving the goods.

Thus, opening of a documentary letter of credit, providing guarantees to all its participants and clearly delimiting their obligations, is a very flexible and reliable instrument for short-term financing, acting irrespective of any relations between the exporter and the importer. We offer assistance in issuing the letter of credit in all the countries around the world. Cooperation with us guarantees a significant relief of all necessary procedures.

The cost of a letter of credit is calculated for each client within the individual proposals. Easy and compete application forms for receiving the financial documents are available here below. Consideration of the application is done within 3 working days. Our experts are always ready to help with the issuance of the letter of credit and to provide the necessary information on the cost of the letter of credit during working hours by the mentioned phone numbers.