LETTER OF CREDIT
Letter of Credit (Documentary Credit)
A Letter of Credit, also known as Documentary Credit, is an instrument for settling trade payments. It is an arrangement by means of which the bank (Issuing Bank) acting at the request of the customer (Applicant), undertakes to pay to a third Party (Beneficiary) a predetermined amount on a given date according to agreed stipulations and against presentation of stipulated documents.
In International Trade, Documentary Credits are an ideal instrument of settling International Trade Payments, considering the complexities of trade requirements of both seller and buyer.
STANDBY LETTER OF CREDIT
A Standby letter of credit may apply in general to transactions which are based on the concept of default by the applicant in performance of a contract or obligation.
In the event of default, the beneficiary is permitted to draw under the letter of credit. Standby letters of credit may be used as a substitute for performance guarantees, or issued to guarantee loans granted by one firm to another, thereby securing payment to the creditor in the event the other party fails to repay its obligation on the due date. Even if the applicant claims to have performed, the bank issuing the letter of credit is obliged to make payment provided the beneficiary produces complying documents, usually a sight draft, and a written demand for payment
Collections are international trade procedures in which the bank in the importer’s country acts on behalf of an exporter for collecting and remitting payment for a shipment.
The exporter presents the shipping and collection documents to his or her bank (called the Remitting Bank) which sends them to the Bank in the importer’s country.
The importer’s bank (called the Collecting bank) hands over shipping and title documents (required for taking delivery of the shipment) to the importer in exchange for cash payment (in case of ‘documents against payment’ instructions) or a firm commitment to pay on a fixed date (in case of ‘documents against acceptance’ instructions).
This facility (pre shipment and post shipment) is available to exporters through:
Letter of Credit
avalised Bill of Exchange
This short term facility, generally granted for 90 days is available for settlement of both sight and usance documentary credits, Collections and open account payments on behalf of our customers. It provides the customer with the flexibility to manage his cash flow.