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Letters of credit
Letter of credit is the method of payments that is very widely practiced in international commerce for reducing the financial risks of exporters and importers. The letter of credit is an obligation issued by an issuing Bank on behalf of the Ordering Customer (an importer) to make payment in favor of the beneficiary (an exporter) against submitted documents that are strictly compliant with the terms of the letter of credit.
The Bank shall undertake an obligation of payment in favor of the Beneficiary. By this facility the Beneficiary is insured at the moment of opening the letter of credit from the risk of the counterparty's default. In addition, the Beneficiary in any case doesn't depend upon contractual relations existing among Banks and between the Ordering Customer and the issuing Bank
In order to unify operations on the documentary letters of credit the Uniformed Rules and Customs for the Documentary letters of credits, edition 2007, publication No.600 of the International Chamber of Commerce, have been developed. The reference to these rules should be incorporated into the text of the Letter of credit. The rules are obligatory for all parties involved.
The following parties can participate in settlements using the method of the documentary letter of credit (depending on its terms):
- an Ordering Customer — an importer or a buyer.
- an Issuing Bank — a Bank opening a letter of credit on the order of the Ordering Customer.
- a Beneficiary — an exporter or a seller.
- an Advising Bank — a Bank that is usually rendering services to the Beneficiary and that authenticates the message on issuing of the letter of credit received from the issuing Bank and sends (advises) this message to the Beneficiary.
- a Confirming Bank — a Bank adding to the letter of credit its own confirmation, that is undertaking in respect to the obligations of the issuing Bank the additional identical obligations to perform the payment on the letter of credit or to make other actions in accordance with terms and conditions of the letter of credit.
- an Executing Bank — a Bank that is directly carrying out the payment on the letter of credit to the receiver of the funds. The role of the Executing Bank can be performed by an issuing Bank, an advising Bank or a Confirming Bank. As an alternative option, an executive Bank could be any other Bank.
- a revocable letter of credit could be amended or cancelled by the issuing Bank without preliminary notification of the Beneficiary.
- an irrevocable letter of credit couldn't be amended or cancelled without consent of the issuing Bank, the confirming Bank (if any) and the Beneficiary.
You are welcome to call and receive operative consultations and assistance, you might need, with any questions and comments. Please, use the next telephone number: +375 17 239 17 75, 239 17 73, 239-17-72.Print