Product Description

Many Exporters will not provide goods unless they receive payments in advance or are guaranteed payment by a bank. A Letter of Credit is a conditional payment guarantee provided by an Importer's bank to the Exporter. The payment guarantee is conditional upon the Exporter providing documentary evidence of the shipment of goods in accordance with the terms of the Letter of Credit. The Importer's bank will guarantee the payment to the Exporter either immediately upon receipt of the correct documents or at some future determinable date e.g. 60 days from sight (by the bank) of the shipping documents or 90 days from Bill of Lading date. Letters of Credit are issued subject to the Uniform Customs and Practice for Documentary Credits issued by the International Chamber of Commerce.

Product Benefits

The Importer's bank takes on the responsibility of paying the Exporter, reducing the administration of the accounts payable function in the Importer's office.

The Importer's bank is only authorised to effect payment for documents that comply with the terms and conditions of the LC. In the event that documents do not comply with the terms and conditions the bank must refer to the Importer before payment is effected.

The provision of a bank guarantee of payment may enable the Importer to negotiate extended trade credit terms.

Using Letters of Credit with extended credit terms may be a relatively cheap source of credit when compared to overdrafts.

Multiple payments can be effected under one Letter of Credit.

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