In case documents do not comply with letter of credit terms, payment under letter of credit is effected only after receipt of the buyer’s approval for payment. Buyer’s bank checks the compliance of the documents against letter of credit terms, effects payment under letter of credit and hands the documents over to the buyer.
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More information on standby letters of credit can be found in the guarantees section. Transport documents are rarely requested. In order to receive payment under standby letter of credit it is usually sufficient to present a copy of unpaid invoice and the seller’s claim for payment to the bank. does not pay for the goods if the applicant is the buyer. This means that the benefi ciary demands money only if the applicant fails to perform its obligation, e.g.
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A standby letter of credit is, in essence, a guarantee. If the terms and conditions of the LC allow for partial consignments, the LC can be transferred to several second beneficiaries (not exceeding the initial amount or quantity of goods). The intermediary (= the first beneficiary) replaces only the invoice and bill of exchange of the second beneficiary (increase by its commission/profit) upon the arrival of the documents at the transferring bank. The supplier (= the second beneficiary) has to fulfil the terms and conditions of the LC and submit the documents. The transferable LC allows for intermediating major goods transactions with minor investments. may show it‘s name and address instead of the LC applicant, i.e.may shorten shipment date and date of presentation of documents.may lower LC amount and unit price of goods.When transferring letter of credit, intermediary is only allowed to make following changes to the original LC: By transferring the LC intermediary releases it‘s rights to the part of received LC amount to the second beneficiary of the LC. Thus, the intermediary buys the goods using the same LC under which it resells goods to the buyer. By confirming LC the confirming bank undertakes to effect payment in case letter of credit complying documents are presented to the bank, no matter if payment is effected by the LC issuing bank.Ī transferable LC gives the intermediary the opportunity to apply to the nominated bank for the transfer of the LC for the benefit of its supplier. International rules are observed in the transaction.Įxport letter of credit discounting Types of letters of credit Sellers who want to avoid the possible risks of the issuing bank or its country of location should always ask for the confirmation of the LC by his own bank.It allows the user to do business in riskier regions.It allows the user to obtain financing.
![accountee in letter of credit accountee in letter of credit](https://image.slideserve.com/493676/letter-of-credit-1-10-l.jpg)
Is an obligation of the bank that issues an LC (Letter of Credit) to pay the LC amount to the seller of the goods if he submits to the issuing bank the documents listed in the LC in compliance with the terms and conditions of the LC.