Letters of Credit
A Letter of Credit (LC) facility is availed to buyers and/or importers and offers you secure payment terms to your suppliers and/or exporters abroad. The terms simultaneously ensure the prompt delivery of your goods and services and in the condition expressed. Once the contract and/or delivery has been fulfilled as required, payment is then released to the supplier/exporter. The LC can be local or international.
An LC therefore serves as a guarantee to the seller that he/she will be paid by the customer. It also acts as a guarantee to the buyer that what they are buying will meet the required specifications.
Credit Bank offers LCs in addition to arranging for confirmation of Letters of Credit by a range of world-class international banking institutions.
Benefits of a Letter of Credit
- Under a Letter of Credit, the payment risk is eliminated meaning you can therefore negotiate better price discounts with your suppliers or request extended credit terms to help improve cash flow because import payment is guaranteed by bank upon presentation of compliant documents by the beneficiary.
- You are able to maintain control over the transaction through the defined LC terms and mechanisms.
- Payment is only after shipment and supplier’s compliance hence the risk of not receiving goods ordered can be reduced
- Eliminates the country risk
- The facility available in local as well as foreign currencies
- Finance can be availed to beneficiary on the strength of the letter of credit.
- The terms and conditions of the letter of credit cannot be amended without his consent.
- With Credit Bank, you will also get a dedicated team that ensures seamless follow-up at all stages of the import / export and the payment process giving you peace of mind.
At Credit Bank, there are various types of LCs that are available and can be structured to suit your transaction requirements including
- Import and Export LCs
- Back to back LCs – The beneficiary of a letter of credit uses the Master LC as security/cover and a basis to issue another letter of credit (import LC) in favour of their supplier. The Master LC and the import LC are two separate letters of credit, but with same terms.
- Transferable LCs– The Bank facilitates the amendment of a Letter of Credit from the original beneficiary to one or more second beneficiaries.
- Confirmed Letter of Credit– The Bank authorizes Correspondent Banks overseas to confirm the letter of credit, in effect the correspondent Bank takes up the undertaking under the said letter of credit on behalf of Credit Bank.
- Revolving LCs- This is a facility used where constant and regular shipments from same supplier are to be effected over a given time period. Amount of the letter of credit is reinstated without specific formal amendment being required.
- Standby LCs
- Red/Green Clause LCs