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Letter of credit is a payment method used in international trade. Letter of credit means the obligation of the issuing bank to make the payment to the beneficiary of the letter of credit when the latter presents the documents that comply with the terms and conditions of the letter of credit.
Makes it possible to reduce the risks arising from prepayments or related to the buyer’s solvency and payment discipline.
The terms and conditions of the transaction are defined when a letter of credit is issued and the payment is made only after these terms and conditions have been met.
The deadlines and terms of payments and deliveries are regulated with the terms and conditions of the letter of credit. The seller can be sure that payment for the dispatched goods is made on time, because payment is guaranteed by the buyer’s bank.
1. The buyer and the seller agree on the terms and conditions of the trade and that letter of credit will be used to pay for the goods.
2. The buyer contacts its bank and applies for issuance a letter of credit for the benefit of the seller.
3. Since the bank guarantees that a payment is made to the beneficiary when a letter of credit is issued, it must make a credit decision about the buyer before issuing the letter of credit.
4. The buyer’s bank issues a letter of credit and sends it to the seller’s bank as a SWIFT message.
5. The seller dispatches the goods and sends the documents to the bank.
6. The seller’s bank sends the documents to the buyer’s bank. Once the compliance of the documents with the terms and conditions of the letter of credit has been ascertained, the buyer’s bank makes the payment or promises to make it on the payment date.
7. The buyer’s bank issues the commercial documents to the buyer and the latter receives the goods.
A letter of credit is an irrevocable obligation of the bank, which is why we regard applications for letters of credit equally with applications for any other credit products.
See the price list of Coop Pank.
Trade Finance Manager
+372 669 firstname.lastname@example.org