The documentary letter of credit

The documentary letter of credit represents a payment tool often used in the international commerce. It provides the seller with an irrevocable commitment of a bank to pay, and, at the same time, it protects the buyer by making the payment only against the presentation of the documents proving the delivery of goods /the performance of the works/ the services, in strict compliance with the terms and the conditions of the letter of credit.

Advantages

  • The letter of credit secures all parties involved (buyer, seller, issuing bank) since the payment is made only if the supplier has fully complied with the conditions of the letter of credit:
  • Permanent adaptability to different forms of international trade;
  • Confidentiality and prompt execution of the letter of credit.

Characteristics:

  • The documentary letter of credit, by its nature, is a separate transaction from the sales or other contract on which it may be based.
  • During the processing of the letter of credit, all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate.
  • The documentary letters of credit are regulated by the Uniform Customs and Practice for Documentary Credits, ICC Publication no.600.

Letter of credit is issued on request of our customer, provided the existence of cash collateral, credit line or external financing. “Banca de Economii” SA offers to its customers irrevocable letters of credit in different foreign currencies, either confirmed or not with sight payment, deferred payment, acceptance and negotiation.

Confirmation of letters of credit issued by Banca de Economii SA is made by first-rate European and American banks on the basis of our credit lines.

 

 THE SCHEME OF PROCESSING THE DOCUMENTARY LETTER OF CREDIT

 

 

1. Conclusion of sales contract between two parties

Buyer (importer) and seller (exporter) agree on the terms of contract and define the documentary letter of credit as payment method.

2.  Application for issue of a documentary letter of credit

Importer (applicant) applies to his bank to issue a letter of credit in favour of exporter (beneficiary), indicating its terms in accordance with the contract.

3. Issue of the documentary letter of credit

The importer’s bank (issuing bank) transmits the documentary letter of credit to its correspondent bank in the exporter’s country (the beneficiary’s bank), asking to advise and if necessary to confirm it.

4. Advising of the documentary letter of credit

The correspondent bank (Advising Bank) informs exporter about the opening of the documentary letter of credit, sending him a copy of it.

5. Delivery of goods and presentation of shipping documents

Exporter delivers the goods and presents to advising bank the shipping documents stipulated in the documentary letter of credit, made in strict accordance with its term and conditions.

6. Taking up of documents

After checking the strict conformity of the documents to the terms and conditions of the letter of credit, advising bank either makes the payment (if it is a paying or confirming bank), or remits the documents for payment to the issuing bank.

7. The remittance of the documents

Correspondent bank remits the documents to issuing bank

8. Effecting payment against strictly complying documents and release of documents

After checking the documents issuing bank effects payment and releases the documents to the importer.

9. Receipt of goods

Receiving the documents importer can clear and enter into possession of the goods.