Documentary Letter of Credit
A documentary letter of credit is an obligation of the bank that opens the letter of credit (the issuing bank) to pay the agreed amount to the seller on behalf of the buyer, upon receipt of the documents specified in the letter of credit.
Import Bills for Collection
When the seller sends the documents to the bank through his banker, the bank will inform the buyer immediately. Documents are released to the buyer when the seller’s payment terms are fulfilled. There are two types of import collection, namely documents against payment (D/P) and documents against acceptance (D/A).
Banker’s Guarantee/Standby Letter of Credit
A banker’s guarantee/standby letter of credit is a definite undertaking by the bank to pay the beneficiary a certain sum of money within a specified period if the applicant fails to fulfill his contractual or other obligations of an underlying transaction. It is usually to secure either a financial or performance obligation of the principal.
Back-to-Back Letter of Credit
This is used by middleman traders with accredit facility. The master export letter of credit from the buyer’s bank backs the issuance of an import letter of credit. Proceeds from the master export letter of credit are then used to pay the bank under the import letter of credit.
Export Letter of Credit Negotiation
The seller presents documents that are called for under the export letter of credit to the bank for checking, processing and dispatch to the issuing bank for reimbursement. Upon receipt of payment, the export proceeds are credited to the seller’s account with the bank.
Export Bills for Collection
The bank will send documents presented by the seller to the buyer’s banker in a timely manner. Documents will be released to the buyer upon payment or against acceptance.
Letter of Credit Confirmation
Letter of credit confirmation is usually requested if the seller is not comfortable with the credit worthiness of the issuing bank, and/or is concerned over the buyer’s country risk. The confirming bank provides a guarantee of payment on due date on top of the issuing bank’s own commitment to pay the seller.
Shipping Guarantee refers to a written guarantee, issued by the bank which will bear joint liability, and is presented by the importer to the carrier or its agent for picking up the goods in the case of arrival of cargo prior to the shipping documents. Shipping Guarantee is commonly used under L/C with full set of documents of title to goods.
Transferable Letter of Credit
This is usually used by middleman traders who do not enjoy a credit facility. The bank will transfer the Export Letter of Credit in favor of the ultimate seller at the request of the middleman, who will then sell the goods under the Export Letter of Credit.
Letter of Credit Advising
The bank authenticates the L/C to ensure that the LC comes from a genuine source and informs the seller on the arrival of LC in his favor once the L/C is ready for collection.
Export L/C Discounting /Purchase
Export L/C Discounting: after the seller presents the documents called for under the Export Letter of Credit and a payment commitment from the issuing bank is received, the bank advances the seller the proceeds before the receipt of payment from the issuing bank.
Export L/C Purchase: after the seller presents the documents called for under the Export Letter of Credit and before a payment commitment from the issuing bank is received, the bank advances the seller the proceeds before the receipt of payment from the issuing bank.
Import T/T Financing
The bank facilitates COD transactions by providing financing to the buyer who uses the proceeds to pay the seller.
Trust receipt is a type of short-term loan to provide the buyer with financing to settle imported goods where title of goods is held by the bank. Under a TR agreement, the bank retains title to the goods but allows the buyer to take possession of the goods on trust for resale before paying the bank on TR due date.