Documentary Letters of Credit
How can I use this product?
A documentary letter of credit can help you minimize business risks related to contracts with your domestic and international partners. It is one of the most important payment instruments used for settling receivables in domestic and international business.
The documentary letter of credit is a high-quality obligation instrument, by which the bank commits in writing to pay, upon the request of a client (the purchaser of goods), the supplier (through the bank) for the supplied goods or services, if all the set conditions of the letter of credit are met and if the supplier has submitted the corresponding documents to the bank.
If the conditions of the letter of credit are met, the bank does not have to prove the legal relationship between the contractual parties, or the facts of the actual realization of the business transaction.
With a letter of credit, you can pay the entire value of a contract and also just a part of it.
Types of letters of credit:
- From the standpoint of legal bindingness:
- A confirmed letter of credit
- An advised letter of credit
We recommend using a documentary letter of credit in the event you are dealing with a new business partner, or a great territorial distance, wherein you as the exporter wish to have the payment for the goods secured even before the production or the expedition.
What are my benefits?
For the L/C beneficiary:
- A documentary letter of credit will help you minimize the risks related to contracts with your business partners.
- With a documentary letter of credit, you have the certainty that you will receive your payment as long as you submit the required documentation.
- You acquire payment from the bank, not from the customer.
- You may use the letter of credit, with respect to your suppliers, as a guarantee.
- The receivable may be sold, which enables you to get your money immediately.
For the L/C orderer:
- Thanks to this high-quality payment securing, you - as the customer - can attain more favourable price conditions.
- The payment shall be executed at the moment when all the L/C conditions are fulfilled and all of the required documents are submitted.
- As the orderer, you are motivated to make the supplier carry out the contractual supply at the required time and in the required quality.
What else do I need to know?
Issuance of an import documentary letter of credit:
You can apply for the issuance of a L/C in the event that you have an account kept with Expobank CZ a.s., or if Expobank CZ a.s. has provided you with a financial/credit line. The relationship is defined in the "Contract on the Issuance of a Documentary Letter of Credit", wherein the bank commits itself to provide a financial performance to a third person (the beneficiary) in the event that the beneficiary fulfills the stipulated conditions by a certain date; the orderer shall be obliged to pay the bank a commission. An integral part of the "Contract on the Issuance of a Documentary Letter of Credit" is the "Documentary L/C Issued Order" that the client is obliged to complete.
Issuance of an export documentary letter of credit:
The issuing bank, upon the order from its client (the customer), will issue a letter of credit in favour of the client (the exporter) via SWIFT (telex). Upon receipt of the letter of credit from the orderer, Expobank CZ a.s. shall decide either to confirm it or to advise it to our client (the exporter).
The fees and commissions to the bank are negotiated in the contract and are derived from the actual expenses and costs. For more detailed information, please review our valid "List of Charges and Commissions", or the "List of Charges and Commissions for Correspondent Banks".
It is necessary to define, as early as at the negotiation of the L/C conditions, which party will bear which costs. Usually, the orderer bank's expenses are born by the orderer and the supplier bank's expenses are carried by the exporter.
The preparation of documentary letters of credit is ruled by the "Uniform Conventions and Rules for Documentary Letters of Credit" issued by the International Chamber of Commerce in Paris.