Letters Of Credit

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Standby Letter Of Credit

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Documentary Letter of Credit

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Bank Guarantees

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Bankers' Draft

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Financial Instruments Issuance Process

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Letter of credit

A letter of credit ("LC") is a flexible and internationally accepted form of financial guarantee. What it does depends upon what it says. But with that caveat, it is commonly organised to support the Trade Finance in goods. In this situation, it is transmitted by the importer's bank to the exporter's bank. The importer's bank:

  • agrees to pay the exporter's bank
  • a specified sum of money if
  • certain documents are provided
  • by a certain date
  • for onward credit to a beneficiary (the exporter).
  • A couple of important points:
  • In practice, banks deal with each other over the detail of LCs. This means that the two parties (the importer and exporter) have to accept that any negotiations over the LC will happen between the banks involved.
  • There is an international body of rules called "UCP600" which regulates how LCs work. LCs should expressly refer to this set of rules.
  • As already mentioned, the LC will operate based upon how it is drafted. It is important that a specialist is involved to make sure that the LC is fit for the purpose intended.
  • An LC used to support the Trade Finance in goods typically follows a simple template. One bank "issues" it, the other bank "negotiates" it. In Trade Finance, the issuing bank and the applicant are on the importer side, and the negotiating bank and the beneficiary are on the exporter side. It is usually transmitted between the banks by SWIFT. This kind of LC has different parts:

  • Who are the parties (issuing bank, negotiating bank, applicant, beneficiary)?
  • What documents should be provided by when?
  • Can it be transferred?
  • What happens with additional costs?
  • When will the cash pay-out happen after meeting the conditions?
  • There are many types but in Trade Finance, three types are commonly used in transactions involving the shipment of goods:

  • Standby LC: this works like a bank guarantee, and is usually unrelated to any specific Trade Finance. It is capable, sometimes, of being claimed by a beneficiary directly. It is not the type of LC that is typically required by an exporter to support a shipment of goods.
  • Sight LC: this supports a specific import-export deal, paying out when shipping documents matching the specified requirements are presented on time to the importer's bank;
  • Usance LC: same as the sight LC, just that the payment is made some specified number of days after the conditions are met.
  • by a certain date
  • for onward credit to a beneficiary (the exporter).
  • A couple of important points:
  • In practice, banks deal with each other over the detail of LCs. This means that the two parties (the importer and exporter) have to accept that any negotiations over the LC will happen between the banks involved.
  • There is an international body of rules called "UCP600" which regulates how LCs work. LCs should expressly refer to this set of rules.
  • As already mentioned, the LC will operate based upon how it is drafted. It is important that a specialist is involved to make sure that the LC is fit for the purpose intended.
  • An import LC is used to give confidence to an exporter so that he can ship the goods to the importer before being paid. In some markets, a letter of credit from an importer is also used as collateral by an exporter to obtain local financing ("back-to-back"). An exporter may borrow against a purchase order that is supported by an LC arranged by the importer.

    Letters of credit to support the import and export of goods are usually organised by the importer on a Trade Finance. There are two ways:

  • The importer goes to his bank and asks them to issue a letter of credit. This means filling in forms, paying fees, putting up collateral and using banking lines.
  • Use a specialist arranger like MAXWORTH CAPITAL who can organise the LC for you.
  • Standby Letter Of Credit

    A guarantee issued by a bank or a financial institution to pay a beneficiary on a client’s behalf in a situation where the applicant defaults, is known as a standby letter of credit. This was developed as a consequence of legal limitation put by the US regulator on the bank’s authority for issuing guarantees. A standby letter of credit is considered quite suitable for a wide range of secure payments making it quite a flexible tool. Most commonly, it is used for international Trade Finance purposes for providing assurance to the party that it will receive the payment whatever the case it. Having said this, there are quite a few complexities involved in a standby letter of credit. This suggests that it is necessary to have a consultation with an expert in case complete information is not available regarding the procedure. There are certain types of a standby letter of credit which are mentioned below:

  • A direct-pay standby
  • A performance standby
  • A bid-bond or tender-bond standby
  • An advance-payment standby
  • A financial standby
  • A counter standby
  • A commercial standby
  • An insurance standby

  • Bank Winter
  • Stern International Bank
  • Standard Commerce Bank
  • Anametrics
  • Crown Financial Merchant Bank
  • Barclays Bank
  • Documentary Letter of Credit

    A documentary letter of credit is a guarantee that provides assurance to the beneficiary that he will get the payment which has been mentioned in the documentary letter of credit. There is a condition that the compliant presentation should be under the documentary letter of credit. This documentary letter of credit is commonly used for international transactions where both the buyer and the supplier have a new relationship and operate from different countries.
    A documentary letter of credit is a really crucial financial instrument for meeting the short-term needs. It enables the recipients for obtaining the important credit for financing the project. The recipients hope of getting sufficient return for settling the due amount in the provided time frame.
    The documentary letter of credit showcases the documents and information that are needed by the beneficiary on presentation which includes the expiry information like date and time of the letter. The compliant presentation is a kind of guarantee given to the beneficiary by the documentary letter of credit for in order to get paid. The only criterion is that the delivery conditions should be met.
    It is the responsibility of the bank that writes the letter of credit on the applicant’s behalf to ensure that the terms and conditions which are required for documentation purposes under the credit are met duly before any amount is paid to the supplier. Documentary letter of credits come under the governance of the International Chamber of Commerce (ICC) rules. These rules for the letter of credit are known as Uniform Customs and practice for documentary Credit (UCP). The current version which is in effect is the UCP600 from July 1st, 2007. The concerned parties to a documentary letter of credit are the issuing bank and the beneficiary.
    In these cases the credit worthiness of the issuer stands in place of the credit worthiness of the buyer – giving the supplier greater comfort that he will be paid.

    Calls for limits and restrictions. Please ask for each bank restrictions and line limits: Habib Bank AG Zurich

  • BNP Paribas
  • HSBC
  • Standard Chartered Bank
  • China Construction Bank
  • OCBC Wing Hang Bank
  • Dash Sing bank
  • DBS Bank
  • UCO bank
  • Habib Bank
  • IDB, New York
  • Bank Winter
  • Hanami Bank
  • Stern International Bank
  • U.S. Credit Corp
  • Standard Commerce Bank
  • Anametrics
  • Crown Financial Merchant Bank
  • Calls for limits and restrictions. Please ask for each bank restrictions and line limits:

  • Bank Winter
  • Stern International Bank
  • U.S. Credit Corp
  • Standard Commerce Bank
  • Anametrics
  • Crown Financial Merchant Bank
  • Bank Guarantees



    A promise made by the bank for meeting the liabilities of a debtor when a person fails to fulfill his contractual obligations. There are two types of bank guarantees — Direct or indirect:

    A direct guarantee is one where a bank is asked to provide a guarantee by its account holder, in favour of the beneficiary.

    In an indirect guarantee, a second bank issues a guarantee in return for an already issued guarantee. When the second bank suffers losses when a claim is made against a guarantee, the issuing bank will make sure that it compensates all the losses.

    Guarantees provide comfort to the beneficiary; in case the applicant fails to meet his obligations (either financially or by performance) as per the contract made between the applicant and the beneficiary, the beneficiary will have the guarantee to turn to for payment.

    Having a guarantee issued in support of a client’s transaction can help the client grow and expand their business by postponing current payments for goods and/or services to a later date, provide comfort to buyers, allow clients to bid on transaction , without requiring that ITF’s clients tie up their available cash.

    Following are the different bank guarantee types that are available:

    A Bank Guarantee is a versatile tool which can function as a number of instruments: a bid bond, a performance bond, and advanced payment guarantee, a warranty bond, a letter of indemnity, a payment guarantee, a rental guarantee, or a confirmed payment order.

    A BID BOND is usually issued for bidders on construction or similar tender based projects. A bid bond is a debt secured by a bidder. In effect, it serves to secure the bidder’s investment in the project and to discourage bidding by less serious players. A bank guarantee could be presented as a partial alternative to the financial capital typically required by a project owner.

    A PERFORMANCE BOND, or CONTRACT BOND is utilized in the real estate industry to make sure a contractor completes a designated project. A performance bond is issued by a bank, insurance company or a financial institution in favor of a beneficiary by order of an applicant, against the applicant’s failure to meet its obligations as per an underlying contract. A performance bond often covers 100% of the contract value and can replace a bid bond when the applicant has been awarded a contract. If effect, applicants use performance bonds to comfort suppliers who are concerned with the prospect that the applicant might become insolvent or otherwise unable to fulfill his contractual obligations. In case of insolvency of the applicant, the beneficiary receives compensation that should ease financial stresses or other damages caused by the contractor.

  • An ADVANCE PAYMENT GUARANTEE, or ADVANCED PAYMENT BOND is an agreement where an issuer undertakes responsibility to return an advanced payment to the buyer, should the seller fail to meet his obligations.
  • A WARRANTY BOND is a contract between a project/property owner, a contractor, and a surety company. The bond promises that any defects found in the original project will be repaired during the warranty period. Frequently used in the housing and construction sector, a warranty bond guarantees an investor that a contractor will resolve all covenants that relate to materials used and work done before the warranty on the materials expires.
  • A LETTER OF INDEMNITY is an instrument guaranteeing contractual provisions will be met; otherwise financial reparations will be made. A letter of indemnity is often utilized to request replacements for lost shares from a company’s treasury.
  • A PAYMENT GUARANTEE provides the supplier with financial security in case the applicant fails to pay for goods or services supplied. Payment guarantees mitigate credit or country risk when the supplier ships the goods on an open account basis, which is to say, before receiving payment. Payment guarantees are typically issued to cover debts in cases of non-payment arising under a transaction or over a period of time. The instrument’s wording is based on the terms outlined in the original debt agreement between the applicant and the beneficiary. The applicant will make a repayment based on these terms. Sometimes a payment guarantee can be backed with collateral, such as property or asset that is pre-approved by the lender.
  • RENTAL GUARANTEES promise payment to a landlord in case a tenant defaults financially. Since the risk of a tenant defaulting can be extremely harmful to a property owner, rental guarantees are extremely valuable tools which give security to industrial and commercial landlords.
  • A CONFIRMED PAYMENT ORDER is an irrevocable obligation to pay. In most cases, the confirmed payment order is conditional on successful completion of a project.
  • In practice, banks deal with each other over the detail of LCs. This means that the two parties (the importer and exporter) have to accept that any negotiations over the LC will happen between the banks involved.
  • There are certain terms and conditions that the guarantee by the bank is subject to. This stipulates that it is mandatory for the ban to pay the beneficiary the fixed amount promised on the behalf of the client once the conditions are satisfied.

  • Bank Winter
  • Stern International Bank
  • Standard Commerce Bank
  • Anametrics
  • Crown Financial Merchant Bank
  • Instrument Issuance Procedure

    We need the following documents/ information for finalising the draft –

  • Filled in application form
  • Verbiage required in the instrument for SBLC & BG / Pro-Forma Invoice for DLC
  • Trade Finance license of your company
  • Share Holders List
  • Passport copy of main applicant
  • Last Three years audited balance sheet
  • Last Six months latest bank statements
  • Filled in application form
  • After acquiring all the above documents / information, we will select the issuing bank / financial institution and finalise the draft for your review.
  • Upon receiving the draft copy of the instrument, you must thoroughly review the draft for any corrections, additions or removal of information. Should there be any amendments, we can amend the draft accordingly to match your preferences. Once the draft is approved, you will need to send us a copy of the draft with sign and stamp on it as your approval.
  • We will raise the invoice for the agreed charges (charges include margin money, processing fee and professional charges) and you will make the remittance against the invoice.
  • Only after we receive the payment for the raised invoice, the Issuing Bank / Financial Institution will issue and relay the instrument through swift within 48-96 hours after remittance.
  • Simultaneously we will send you the issued copy through email for your reference and record.
  • Note: The charges will depend on the value of the Financial Instrument, Tenure, Issuing Bank / Financial Institution.