Letters of Credit

A documentary letter of credit is one of the most secure payment instruments in international trade, in the import and export of goods.

A letter of credit is a obligations of the issuing bank to pay to the exporter on behalf of the importer upon complying presentation of the documents mentioned in the letter of credit.

Advantages

For the importer

  • A documentary letter of credit helps the importer minimise the risk the exporter not to deliver the goods.
  • It guarantees that payment will be executed upon presentation of the documents confirming shipment of the goods.
  • It allows the importer to structure the payment according to the contract and their needs.
  • It shows solvency and ability of the importer to negotiate favourable terms in future.

For the exporter

  • It guarantees payment upon complying presentation of documents.
  • It minimises production risk if the buyer cancels or changes the order.
  • It allows the exporter to structure the delivery in accordance with their interests.
  • The importer may make claims on goods received outside the letter of credit, which gives the exporter a guarantee that they will receive the full payment for the goods delivered without further deductions.

Terms