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Documentary Letter of Credit

A documentary letter of credit is a written undertaking of a bank, that on the basis of a request by its client (buyer, payer) and from its account, to provide to the entitled person (beneficiary, seller) certain performance (pay a financial amount) upon the presentation of certain documents that document the delivery of certain goods. The documents must comply with the conditions of the letter of credit and must be presented by a certain date and in a certain place.

Advantages and Characteristics of a Documentary Letter of Credit

  • Eliminates risks both for the supplier and for the client (the recipient of the letter of credit is certain that he will get paid and the payer that he will receive the goods following payment)
  • By choosing the right letter-of-credit conditions and documents, the buyer (the payer from the letter of credit) can arrange for the optimal performance of the contract, and ensure themselves control over the movement of the goods, and over its quality
  • We offer clients consultation in order to help them reduce their business risks
  • One of the most widespread payment instruments in international trade
  • Used primarily among business partners who are beginning to trade with one another, for contracts for higher amounts, for securing longer-term contracts, and in riskier territories
  • Domestic letters of credit are used primarily to secure real estate transactions and are subject to a more advantageous rate than foreign letters of credit

Import Documentary Letter of Credit (Client)

  • Opened on the basis of a written application of a client (buyer) in which the letter-of-credit conditions and documents are set out
  • The client secures the obligation by cash or a loan
  • By issuing the letter of credit, the bank assumes the obligation to pay to the supplier (recipient of the letter of credit) the appointed amount, once the conditions specified in the letter of credit are satisfied

Export Documentary Letter of Credit (Supplier)

  • Opened by the issuing bank for the benefit of the client (seller) with the advising bank, which gives the client written advice of the opening of the letter of credit
  • If the client agrees to the conditions of the letter of credit, he sends off the goods, obtains the documents required by the letter of credit, and submits them to the advising bank
  • The advising bank will send the documents to the issuing bank for payment