Documentary Letter of Credit (LC) | Bank Guarantee

What is a Documentary Letter of Credit?

A Letter of Credit is a payment term generally used for international sales transactions. It is basically a mechanism, which allows importers/buyers to offer secure terms of payment to exporters/sellers in which a bank (or more than one bank) gets involved.

The technical term for Letter of credit is ‘Documentary Credit’. At the very outset one must understand is that Letters of credit deal in documents, not goods. The idea in an international trade transaction is to shift the risk from the actual buyer to a bank. Thus a LC (as it is commonly referred to) is a payment undertaking given by a bank to the seller and is issued on behalf of the applicant i.e. the buyer. The Buyer is the Applicant and the Seller is the Beneficiary. The Bank that issues the LC is referred to as the Issuing Bank which is generally in the country of the Buyer. The Bank that Advises the LC to the Seller is called the Advising Bank which is generally in the country of the Seller.

How can a Letter of Credit help you?

For agents, brokers, corporations, government linked companies, small-medium sized enterprises, and traders; Documentary Letters of Credit (Financial Instrument) improves credit worthiness and reduces risk of default, you can gain access to financing options not previously available.

TFC can arrange and help you obtain this important financial instrument within a 48 -144 hour turnaround time upon full submission of documents required.

Standby Letters of Credit

What is a Standby Letter of Credit/Bank Guarantee?

Bank Guarantee (BG) is where one Bank (the Issuing Bank A) issues an indemnity(cover/insurance) to another Bank (the Beneficiary Bank B) or directly to a Beneficiary, on behalf of its account holder. The Issuing Bank will expect its account holder to pledge ‘assets’/cash to the bank for its issue.

There are effectively two main types of Bank Guarantees,

  1. A Direct Guarantee where the account holder instructs his bank to issue a Guarantee directly in favor of the Beneficiary, and
  2. An Indirect Guarantee where a second bank is requested to issue a Guarantee in return for a counter-Guarantee. In this case the Issuing Bank will indemnify losses made by this second bank in the event of claim against the Guarantee.

A Bank Guarantee is considered a “Demand Guarantee” and as such is governed by the International Chamber of Commerce (ICC) Uniform Rules for Demand Guarantees (URDG).

How can a Bank Guarantee/Standby Letter of Credit help you?

For agents, brokers, corporations, government linked companies, small-medium sized enterprises, and traders can assist in:

  • *acting as a Performance Guarantee (Performance Bond)
  • *acting as a Payment Guarantee
  • *acting as a Conditional Payment Guarantee (Conditional Payment Undertaking)
  • *quaranteeing and securing a Credit Line/Loan
  • *acting as an Order & Counter Guarantee

We can arrange, Letters of Support for Projects (Proof of Funds), Bank Comfort Letters for clients using facilities with different banks in Europe, South East Asia and North America.

TFC can  help you obtain this important financial instrument within a 48 -144 hour turnaround time upon full submission of documents required.

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