Understanding the three types
Export Letters of Credit
When a Bank receives a Letter of Credit* to be confirmed or advised (referred to as an Export Letter of Credit), it first verifies the authenticity of the Letter of Credit, then notifies the exporter that a Letter of Credit has been issued in the exporter’s favor. The Bank notifies its exporting client the same day as the Letter of Credit is received. A copy of the Letter of Credit is faxed, mailed, or can be picked up, depending on the wishes of the exporter.
Before shipping the merchandise, the exporter reviews the Letter of Credit to make sure that it conforms to all the terms of the sale and that all requirements can be met. If the conditions cannot be met, the exporter must ask the importer to have its bank issue an amendment prior to shipment.
All Banks handles hundreds of Export Letters of Credit a year. Our services include:
- Same-day notification.
- Competitive advisement and negotiated rates.
- Confirmations at competitive rates.
- Assistance with technical features of the Letter of Credit.
Standby Letters of Credit
A Standby Letter of Credit represents an obligation of the Bank to the beneficiary of the credit. The expectation is that the underlying transaction will be completed as agreed and the Standby Letter of Credit will not be drawn. The major difference between a Commercial and a Standby Letter of Credit is that a Commercial Letter of Credit (Import or Export) is a payment method for a trade transaction whereas a Standby Letter of Credit supports the payment of a debt, which debt may or may not be trade related.
Banks works with its clients to assure that the terms of the Letter of Credit reflect the negotiations of the parties. A Standby Letter of Credit can be used for many purposes, including a bid bond, a performance bond, or support for a loan or unpaid invoices made on an open account shipment.
Our Banks are experienced in issuing Standby Letters of Credit, and has issued these instruments for a wide variety of purposes both domestic and international.
Import Letters of Credit
The Import Letter of Credit process begins when an importer and an exporter agree to use a Letter of Credit as the method of payment for the shipment of merchandise. The importer requests that the Bank issue a Letter of Credit on its behalf.
Once it approves the letter of credit, the transaction is documented with an Application and Agreement for Commercial Letter of Credit.
The Bank issues the Letter of Credit and forwards it to a correspondent bank located in the exporter’s city. The exporter is then advised by that bank (referred to as the “Advising Bank”) that the credit is received, and the exporter ships the goods based on this advice.
The Issuing Bank enters into a contract with the foreign exporter, the beneficiary of the Letter of Credit, whereby it substitutes its credit and reputation for that of an importer.
To receive payment under a commercial letter of credit, the exporter must present a draft along with the documents required in the Letter of Credit. The draft may be a Sight Draft or a Usance (time) Draft. The type of draft drawn by the exporter is determined by the importer, the seller, and the bank before the Letter of Credit is issued.
The Bank is ready to handle your Letter of Credit needs. We issue Letters of Credit within 24 hours from the time of approval of the application. There are over 1,000 correspondent banks around the world that can act as an Advising Bank.
Required Documents for Letters of Credit
Find the most common documents required in an Import or Export Letter of Credit* and the definition of each document.