Letter of Credit is a financial instrument that allows for flexible use in virtually all branches of manufacturing industry as well as in services and transport. It is a universal product subject to uniform rules in force in the world (ICC rules UCP 600).
Letter of credit is the most advantageous, to both parties of commercial transaction (between seller and buyer), form of security and implementation of payment in foreign and domestic trade. It is used for settlement of claims for delivered goods or performance of services between the seller and buyer. It is the preferred form of securing the payment, making bank responsible party of the payment.
Letter of credit is a form of settlements, which primarily protects the interests of suppliers there for is most common with commercial contracts with business partners – customers who are unreliable or have questionable liquidity.
Documentary letter of credit is a conditional payment obligation of the bank, which constitutes a consequence of an agreement between the client requested issuing the documentary letter of credit and the opening bank, for adoption by the payer bank liabilities in exchange for the fulfilment of certain conditions (present valid documents representing the goods or services which are the subject of a commercial contract).
It should be noted that the documentary credit is also a very effective instrument for securing the settlement and payment in international trade.
Depending on the place of issuing documentary credit by the applicant bank (in his country or abroad) distinguish between import and export documentary credits.
Generally speaking, the documentary letter of credit is a bank`s own engagement to the order of applicant (usually the buyer) that:
- Guarantees at sight or deferred payment to the beneficiary, if a beneficiary (usually the seller):
- will dispatch the goods within not a later than specified in the documentary credit as the ultimate,
- will submit the documents in accordance with the requirements of credit, within period specified in the credit for their presentation, but which shall not exceed the documentary credit maturity date,
- and the presented documents will be in full compliance with the requirements of the credit.
- Arranges for payment to be effected, after the fulfilment by a beneficiary the above – mentioned terms and conditions.
- Ensures that the above agreed terms and conditions of the documentary credit are observed.
- In addition to above – mentioned functions, documentary letter of credit, is also a instrument of the trade finance.
Import letter of credit (nostro) – this is a letter of credit, which opens domestic (Polish Bank) on behalf of its national client (importer of foreign goods), and which is exposed to a foreign supplier of imported goods.
Therefore it relates to domestic import transaction.
Import Letter of Credit protects importer against the risk of unfounded withdrawal of the payments to the exporter and provides ample opportunities negotiating commercial transactions. A letter of credit by the bank for the importer provides and confirms a very good financial condition of the company.
We offer a full consultancy in following:
- Negotiation terms of the commercial contract and building payment security mechanism, through the documentary letter of credit.
- Negotiations with the issuing bank (importer bank) related to cash and non-cash security instrument under the documentary letter of credit payment operation.
- Negotiations with the opening bank in question of charges and commissions for the documentary letter of credit.
- Issuance of documentary credit applications on the bank forms.
- Analysis of objections in documents presented by the beneficiary and their impact on the performance of commercial contract.
- Mediation with the bank opening documentary credit at each stage of the letter of credit implementation.
Export letter of credit (loro) is a letter of credit opened, for example, in Polish bank by a foreign correspondent for the bank`s domestic (Polish) exporter – the supplier of the goods.
It concerns the domestic (Polish) export transaction.
Export documentary credit secures exporter against the risks from importer withdrawal from trade agreement, as well as the payment of its title is secured by an irrevocable commitment of importer`s bank.
We offer a full consultancy in following:
- Negotiation terms of contract and building payment security mechanism through the documentary letter of credit.
- Negotiating with the advising bank costs and commissions for the documentary letter of credit.
- Export documentary credit check for its compatibility and for the conditions of the commercial contract.
- Preparation of commercial documents for the export documentary credit in accordance with the ICC regulations: UCP 600, ISBP 681 and ISBP 745.
- Examination of documents under export documentary credit according to ICC regulations such as: UCP 600, ISBP 681 and ISBP 745.
- Analysis of the legitimacy of reservations to the presentation of documents by the beneficiary (seller) through advising / confirming / negotiating bank.
- Mediation with the bank which is advise export documentary credit at each stage of execution the letter of credit.