Letters of Credit

Letters of Credit enable international trade. They protect both the buyer and the seller (the beneficiary), the importer and the exporter. An L/C provides payment protection and reliable delivery of goods and services.

An L/C is an essential means of payment in international trade.

 

The Benefits of an L/C:

It protects buyers and sellers who may not know each other that are in different countries and have different trading practices

It reduces risk of payment for sellers. The seller is protected by presenting the documents required for in the Sale & Purchase Agreement [SPA] contracts

The bank, rather than the buyer, pays the seller directly. This means the risk of payment is dependent upon the bank and not the buyer

Letters of Credit are typically protected by the International Chamber of Commerce (ICC) rules, known as Uniform Customs and Practice [UCP] for Documentary Credits/Letters of Credit.

An L/C is also sometimes known as a ‘documentary credit’, ‘commercial letter of credit’, ‘L/C’, or ‘bank guarantee’. They provide a payment commitment to the seller for an amount against presentation of documents which appear to comply with the terms and conditions of the credit and applicable rules.

 

Types of Letters of Credit:

Letter of Credit [L/C]
Standby Letter of Credit [SBL/C]
Revolving L/C
Transferable L/C or SBL/C

Important Terminology

The Applicant: This will normally be the buyer.

The Beneficiary: This will normally be the seller. This is the party who will be paid under the Letter of Credit [L/C]

The Issuing Bank: The bank that issues the credit, usually under instruction from the Applicant (the Buyer).

The Nominated Bank: this is the other bank in the transaction. This is the bank nominated in the letter of credit where the credit is available

The Advising Bank: this bank will inform the Beneficiary or their Nominated Bank of the credit. They will send the original credit to the Beneficiary (or their Nominated Bank) & provide them with any amendments to the Letter of Credit [L/C].

Confirmation: This can help to further reduce risk. It is an undertaking from another bank (not the issuing bank) to pay the Beneficiary for a Complying Presentation. It is usually provided at an extra cost.

Confirming Bank: Upon the Issuing Bank’s instruction, this bank also confirms to credit. This provides the Beneficiary with an extra level of protection.

A Complying Presentation: The L/C requires a set of conforming documents which comply with the rules of the L/C. This is the Complying Presentation.

Why Trade Credebt® ?

Trade Credebt® is a team of experts in international trade. The team understand business and work with customers to ensure their goals are met.

With a comprehensive understanding of international trade, the team can advise on the most appropriate and efficient means to achieve client goals.

We work with you to understand your business and provide the financial means and acumen ensure that your business succeeds and flourishes.

 

Funding Levels

We provide fund Letters of Credit from Less than EUR 100.0k to EUR 100.0m +

Inquire about Letters of Credit [L/C]

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