Letter of Credit
TRANSFERABLE 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 LETTERS OF CREDIT
A Standby letters 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