Advantages of the letter of credit for the buyer (importer)
Advantages of the letter of credit for the exporter (seller)
1. The difference between documentary letter of credit and banking guarantee:
- Documentary letter of credit in contrast to banking guarantee, is a payment instrument. It means that opening letter of credit, the Bank directly assumes payment obligation. Whereas, in case of banking guarantee, the Bank is obliged to pay the amount demanded by the beneficiary only in case the debtor fails to fulfill its payment obligations.
2. Whether in case of application of letter of credit the payment against the imported goods is made only upon delivery of goods to the buyer:
- In the scope of letter of credit, the payment is made against the payment documents, in line with the payment conditions set forth by the letter of credit (immediate payment, deferred payment), and regardless of the fact whether the goods reached the actual destination of delivery.
3. What documents should be submitted for opening letter of credit?
- The documentary letter of credit is opened on the basis of client’s instruction (application). Thus, the letter of credit is independent from the sale-purchase contract; however existence of provision on payment by means of documentary letter of credit in sale-purchase contract is a precondition for opening letter of credit.
Main conditions of issuing letter of credit by the Bank
The bank may issue the following types of letters of credit
By the nature of commercial transaction:
By the method of opening:
By the application purpose: