Documentary Letter of Credit
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    Documentary Letter of Credit

    Documentary Letter of Credit

    Enhancing financial literacy with FinGramota

    Are you planning to conclude a foreign trade contract and cannot find an acceptable payment method? Do you need financing for the goods and services you are acquiring?

    We offer the most optimal settlement method that saves time and money by reducing risks and obtaining financing through a documentary letter of credit.

    A documentary letter of credit is an irrevocable commitment by the issuing bank to pay the beneficiary (Seller) the amount for the presented documents, provided that all conditions of the letter of credit are met.

    Benefits for the Buyer

    1. issuance of a reliable payment instrument in favor of the Seller without diverting the Buyer's financial resources from circulation

    2. the bank will make payment to the Seller only after receiving documents that comply with the terms of the letter of credit

    3. opportunity to obtain financing from various sources, including credit lines in foreign banks and international financial organizations

    4. ability to control the timing of goods shipment

    5. possibility to provide for pre-shipment inspection of goods for compliance with certain quality standards, etc.

    6. the bank monitors the transaction, protects the Buyer's interests, and makes payments under the letter of credit without the direct involvement of the Buyer

    Benefits for the Seller

    1. existence of a solid bank payment obligation, independent of the Buyer's solvency

    2. possibility of receiving payment before the Buyer receives the goods

    3. opportunity to offer Buyers more competitive trading terms when issuing a letter of credit with deferred payment

    4. participation in the transaction as an intermediary without using one's own financial resources

    Requirements for Issuing a Guarantee

    1. 100% cash coverage or collateral (real estate, movable property, equipment, funds in a savings account)

    2. Project or copy of the foreign trade contract

    3. Original application for issuing a letter of credit

    Scheme of Contractual Obligations Security Using Guarantees

    Scheme

    1. The Buyer applies to the Bank to issue a letter of credit in favor of the Seller

    2. The Importer's Bank issues and advises the letter of credit in favor of the Seller through its own or any other foreign bank

    3. The Seller ships the goods and prepares documents for payment in accordance with the terms of the letter of credit

    4. The Buyer's Bank or a Foreign Bank makes the payment against the submitted documents