Documentary letter of credit

Settling and securing trade transactions

Documentary letter of credit is recommended for:

companies specializing in local or foreign trade
suppliers/exporters and recipients/importers

L/C is a form of conditional settlements of trade transactions.

The most important features of the product

L/C is opened in order to guarantee that a supplier/exporter (beneficiary) receives payment against the commercial documents which confirm the correct delivery of goods/services
Payment against documents is made by the bank which has opened the L/C - bank participating in letter of credit deal only with documents and not with goods, services or performance to which the documents may relate to - it means that banks are not responsible for the existence or actual status of any goods or for performance of the contract/agreement
L/C is opened upon request of the recipient of goods/payer (applicant)
In the letter of credit, in place of the buyer’s undertaking to pay, a separate undertaking of the bank as a neutral entity is introduced, which thus makes the supplier independed of the will to pay or solvency of the buyer
L/C protects:
- the supplier from the risk of refusal to pay against the documents relating to a given delivery
- the payer from the risk of incorrect delivery of goods/performance of services by the supplier

Are you interested in our offer?

Please contact your Relationship Manager. Detailed information can be also obtained from:

Malwina Łączyńska

malwina.laczynska@citi.com

Benefits

L/Cs as mitigator of trade transaction risks

The supplier (beneficiary) who has received an L/C grants a promise of payment by the bank which has opened it.
For the beneficiary, the confirmation of an L/C by the beneficiary’s bank result in additional security of payment.
The payer (L/C’s applicant) has assurance, in accordance with the L/C terms and conditions, that goods characterized by certain specifications, volume and quality will be delivered in agreed time.
Properly defined documents which should be presented by the beneficiary are the proof that the goods exist and have been shipped to the payer.

L/C as settlement

The payment due to the beneficiary is made after the beneficiary has provided the compliant commercial documents which confirm delivery of the goods.
The L/C is a conditional payment form – commercial documents must be in compliance with the L/C terms and conditions.
The date of payment to the beneficiary is determined in the L/C terms and conditions ordered by the applicant.
Payment may be made either after the documents are submitted and verified („at sight”) or on a deferred payment term.
The applicant refunds the Bank the amount due on the same day on which the Bank made payment to the beneficiary (down payment L/C).
When requesting for a pre-paid L/C the applicant transfers funds to the Bank on the L/C opening date, irrespective of the payment term in favour of the beneficiary.

L/C as payment date management tool

The beneficiary may receive payment earlier that specified in the letter of credit’s condition – after presenting necessary documents (after delivery) – discount of the payment.
The applicant may refund the L/C amount to the Bank at the later date than the date of payment in favour of the beneficiary (prolongation).
With prolongation, the applicant can freely manage funds allocated to L/Cs payments.

Transferable letter of credit – it enables the beneficiary (intermediary) to make settlements with the actual manufacturer/suppliers.

Letter of credit with advance payment – it allows the beneficiary to receive an advance payment.

Additional information

The applicant (ordering party) should note that any bank participating in an L/C deal with only documents and not with goods, services or performance to which the documents may relate. It means that banks are not responsible for the existence or actual status of any goods or for performance of the contract/agreement.

The beneficiary should note that the payment under L/C depends on submission of complaint documents in accordance with the terms and conditions of the L/C.

We recommend our Clients (both exporters and importers) that before choosing a letter of credit as settlement of transaction they should read the "Uniform Customs and Practices for Documentary Credits,” published by the International Chamber of Commerce as publication UCP 600 of 2007.

Extract from the table of fees and commissions

Downloads

Below you will find requests / orders in pdf

Export letter of credit

Import letter of credit