A documentary Letter of Credit (LC) is a written undertaking given by a bank on behalf of a client (the importer) to pay the beneficiary a given sum of money, providing that the exporter presents documents that comply with the terms indicated in the Letter of Credit.
A documentary Letter of Credit is the obligation of a bank to process upon the request (at the client’s order) to make payment to the beneficiary of the Letter of Credit with the presentation of the contracted documents and provided that all contractual obligations have been met. A documentary Letter of Credit is issued in a written form i.e. SWIFT message MT700 which is sent to the user bank via SWIFT.
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LCs are intended for all legal entities, regardless of the type of business registration, that are involved in export and import, and for other companies and entities that require this service and that hold an account with ProCredit Bank.
The subjects of the Letter of Credit are:
Ordering Costumer (Buyer)
Letter of Credit provides security to all the parties involved in an international transaction:
The buyer is confident that the payment will be received against the Letter of Credit only once the seller has submitted all the required documents related to the Letter of Credit within the agreed time frame.
The seller is confident that by dispatching the relevant commercial documents stated in the Letter of Credit, and provided that all the requirements laid down under the Letter of Credit have been met, that they will be able to charge the counter-value of the exported goods, i.e. the service rendered, since the payment is guaranteed by the bank that opened the Letter of Credit and/or confirmed the Letter of Credit.
Prior to issuing a Letter of Credit, the buyer and seller should agree on the following:
- Conditions relating to the payment of the Letter of Credit, as well as a transportation clause
- The type of Letter of Credit, as well as required documents (invoice, packing list, transportation document, certificate of origin, etc.)
- Issuance and expiry dates of the Letter of Credit
ProCredit Bank offers the following types of LC:
Irrevocable Letter of Credit
The irrevocable LC represents a solid and irrevocable obligation to the user of the Letter of Credit who, without the expressed consent of all interested parties, can neither be changed nor withdrawn. The Letter of Credit is in a firm and irrevocable obligation to the user to fulfill the obligations of the Letter of Credit when and if the user presents the relevant documents and fulfills all the conditions foreseen in the LC within the period of its validity.
Affective Letter of Credit
This is a Letter of Credit that can be transferred to another user. In the Letter of Credit it should be made clear that this is the transferable type of LC, otherwise the letter of credit is not transferable.
Inaffective Letter of Credit
An unobtrusive LC can not be conveyed to another user.
Non-confirmed Letter of Credit
If the intermediary bank in the seller’s country notifies the user of the Letter of Credit about the conditions without entering into any obligation except to identify him/her and to pass the credentials accurately and completely, then we are refering to the non-confirmed or unconfirmed Letter of Credit.
Confirmed Letter of Credit
If the bank authorizes or invites the intermediary bank to confirm its irrevocable Letter of Credit, and if the intermediary bank does so, then confirming means its firm obligation as an additional duty of the issuing bank to the user.
Letter of Credit payable by sight
This Letter of Credit is payable on presentation of agreed documentation.
Letter of Credit with a delayed payment
Represents a LC that initiates payment being postponed (e.g. 30, 60, 90, 120, or 180 days) from the invoice date, delivery date, or issuing date.
Revolving Letter of Credit
This is a LC that is not closed after the original amount has been used. The initial amount is returned to the original allotments until the sum of all payments made reaches the maximum amount provided.
Letter of Credit payable within the state
If the documents are checked and paid in the country of the domestic importer or exporter then we refer to the LC as payable in the country.
Letter of Credit Payable Abroad
If the documents have been checked and paid in the country of the foreign importer or exporter, or in a third country, then we refer to the LC as payable abroad.
Covered Letter of Credit
Letters of Credit where the coverage is being made abroad at the time of the opening of the LC.
Uncovered Letter of Credit
Those whose coverage is being made abroad at the moment of liquidation of the LC.
The client applies for the LC directly at the branch office.