WHAT TYPES OF LETTER OF CREDIT DO WE PROVIDE?
At Sight Letter Of Credit (Sight LC)
An At Sight Letter of Credit is payable once it is presented to the issuing bank along with the all of the necessary documents.
An organization offering an At Sight Letter of Credit commits itself to paying the agreed amount of funds provided the all of the provisions of the letter of credit are met.
For example, a business owner may present a bill of exchange to a lender along with an at sight letter of credit and walk away with the necessary funds right away. An At Sight Letter of Credit is therefore considered more on-demand than other types of letters of credit.
Documentary Letter Of Credit (DLC)
A Documentary Letter Of Credit (DLC) is a promise of payment provided by a buyer/importer to a seller/exporter that is guaranteed by a particular bank. Once a DLC document is presented by the seller/exporter to the issuing bank, the bank is obliged to remit full payment to the seller.
The seller/exporter may be required to fulfill certain conditions listed in the Documentary Letter of Credit, such as providing proof of shipment of the goods sold to the buyer, before collecting payment from the bank.
This particular method of payment provides assurance to the seller/exporter that the buyer/importer has the necessary funds for the transaction and is ready to send payment to the seller after the sale is complete.
Usance Letter Of Credit (Usance LC)
An Usance Letter of Credit is a letter of credit that is payable at a specific time and after the presentation of certain necessary documents listed in the letter of credit.
Unlike an At Sight Letter of Credit, where the issuing bank pays the beneficiary of the letter of credit immediately after the issuing bank has had the required documents in the letter of credit presented to them, with an Usance Letter of Credit, the issuing bank will defer payment until the end of an agreed upon term and once the required documents are presented to the issuing bank.
Standby Letter Of Credit (SBLC)
A Standby Letter of Credit (SBLC) is a guarantee of payment issued by an issuing bank on behalf of a client that is used as a "last resort payment" should the client fail to fulfill a contractual commitment with a third party.
Standby Letters of Credit (SBLC) are issued as a sign of good faith in business deals and are used as proof of a client's credit capability and repayment abilities.
The bank issuing the SBLC will perform a brief underwriting procedure to ensure the credit worthiness of the party applying for the Standby Letter of Credit, before issuing the SBLC to its beneficiary.
HOW DOES THE LETTER OF CREDIT (LC) PROCESS WORK?
The parties involved in issuing a Letter of Credit (LC) are the seller/exporter (beneficiary), the issuing bank or financial institution, the buyer/importer (applicant) who is also the bank's or financial institution's client, and usually an advising bank of whom the seller/exporter (beneficiary) is a client.
A Letter of Credit (LC) requires that the seller/exporter (beneficiary) present certain documents before the letter of credit's expiration.
These specific documents are directly related to the contract between the seller/exporter (beneficiary) and the buyer/importer (applicant), as they show the issuer that the seller/exporter (beneficiary) has completely fulfilled his/her side of the deal.
Once the seller/exporter (beneficiary) makes a compliant presentation, the issuer (bank or financial institution) pays the beneficiary even if the buyer/importer doesn't want to pay.
The Letter Of Credit (LC) Process:
Step 1: Application
Complete and return the LC application with the documents from your deal (Pro Forma Invoice, SPA, Contract, etc.).
Step 2: Draft
We will create a FREE Letter of Credit SWIFT MT700 or MT760 draft and quote for you and your sell/exporter to review and confirm.
Step 3: Draft Review & Opening Payment
Once you and your seller/exporter have finalized the LC draft (changes to the draft are free of charge) and are ready to obtain the LC, you then wire the opening fee to our bank according to the pro forma invoice sent to by us.
Once we have received the wire, we will release the finalized Letter of Credit (LC) to the bank or financial institution for issuance by SWIFT MT700 or MT760.
Step 4: Issuance
In most cases, the bank will issue the LC within 48 hours of release.
Once the LC is issued, we email you a copy of the Letter of Credit as it is transmitted by an MT700 or MT760 SWIFT message to the beneficiary, including the LC reference number.
Your seller/exporter will be able to confirm receipt of the LC transmission shortly thereafter.
Step 5: Presentation of Documents
Once the seller/exporter has prepared and loaded all goods for shipment, they must send the specified documents for that particular shipment to their own bank (the advising bank).
Their bank will then forward the documents to our bank (the issuing bank), and we will email you copies of the presentation and all of the documents that were submitted by the seller/exporter for your review and approval.
Step 6: Payment of Goods
Before our bank can release the original documents, we must receive payment for the presentation. Once we have received payment, we cosign the documents to you and overnight them to your freight forwarder or to whomever you wish.
This completes the transaction.
The Letter Of Credit (LC) is governed by a set of guidelines known as the Uniform Customs and Practice (UCP 600), which was first created in the 1930s by the International Chamber of Commerce (ICC).
WHAT ARE THE BENEFITS OF A LETTER OF CREDIT? (DLC) FOR YOU (THE BUYER/IMPORTER)
If you don't have the necessary collateral requirements or a good relationship with a bank to receive a letter of credit—we do.
There is no need to leave a down payment or deposit with your seller/exporter since your Letter of Credit (LC) will be opened for the entire amount of the contract. This will free up capital in your business and will lower your risk in the transaction. The seller/exporter can often borrow against the LC to receive their money faster.
You can protect yourself even further by adding safeguards into the Letter of Credit (LC) including quality control, inspection of goods, and set delivery and production times.
You may open up all types of new opportunities to do business with foreign companies by strengthening your financial position with your seller/importers.
FOR THE BENEFICIARY (THE SELLER/EXPORTER)
As long as you stick to the terms and conditions of the Letter of Credit, payment is guaranteed.
You are protected against the buyer not being able to pay or going bankrupt. The issuing bank takes on the credit risk when they issue the LC.
Lower your collection time on receivables since the LC accelerates payment of goods sold.
You will have an easier time receiving bank financing as you can often use the Letter of Credit as collateral.