A Letter Of Credit Is An Agreement

Hello Cheng, thanks for the increase of this point. Although this type is not covered by UCP600, this can be issued if such conditions are included in the credit, and this may occur from time to time, perhaps due to ignorance, but banks generally confirm no revocable documentary credit. I added this point to remind people that this possibility exists so that they can keep it in mind. The bank will only issue a letter of credit if the bank is confident that the buyer will be able to pay. Some buyers must pay the bank in advance or allow the bank to freeze the funds held by the bank. Others could use a line of credit with the bank and actually get a loan from the bank. For international trade, the seller may be required to deliver goods to a shipyard in order to meet the requirements of the certification agreement. Once the goods are delivered, the seller receives documents attesting to the delivery and the documents are forwarded to the bank. In some cases, simply placing the shipment on board a ship triggers the payment, and the bank has to pay – even if something happens with the shipment. When a crane falls on the merchandise or the ship sinks, it is not necessarily the seller`s problem. Legal counsel: a law firm that advises claimants and beneficiaries on the use of credits.

It is important to get the help of an expert who is aware of these transactions. This type of letter allows a client to make any number of prints in a given time frame. In the late 19th and early 20th centuries, travellers often carried a circular from a relationship bank that allowed the recipient to withdraw cash from other banks during their travels. This type of acclimatized has finally been replaced by traveller`s cheques, credit cards and ATMs. [4] Recipient: the party receiving the payment. This is usually a seller or exporter who has asked the applicant to use a creditor (because the recipient wants more security). While the details of the letter of credit may be understood with some flexibility, banks must adhere to the “principle of strict compliance” to determine whether the documents presented are the documents mentioned in the letter of credit. This is done to make the duty of banks to make payments against documents simple, efficient and fast. The basic principle of all letters of credit is that letters of credit deal with documents and not with goods. The payment obligation is independent of the underlying sales contract or any other contract in the transaction. The bank`s commitment is defined by Coreper`s terms and conditions alone and the sales contract is not taken into account. As a general rule, once a sales contract has been negotiated and the buyer and seller have agreed that a credit is being used as a means of payment, the applicant will go to a bank to request the issuance of a letter of credit.

Once the issuer bank has assessed the buyer`s credit risk – that is, the applicant will be able to pay for the goods – it will issue the accredit, which means that it will give payment to the seller upon presentation of certain documents. As soon as the recipient (the seller) receives the accreditor, he will check the conditions to ensure that he is in compliance with the contract and either ensure the shipment of the goods or request a modification of the accreditor to comply with the terms of the contract. The accreditor is limited in time, the validity of the credit, the last date of shipment and the extent to which documents can be submitted late after the designated bank is sent. [17] Citibank offers letters of credit to buyers in Latin America, Africa, Eastern Europe, Asia and the Middle East who may have difficulty obtaining international loans.