banner

Letter of Credit

Letter of credit is the undertaking of a bank (issuing bank), which acts upon the importer(applicant)’s instruction in writing, that the beneficiary shall be paid up to a certain amount, in exchange for requested documents stipulated in the letter of credit, within the prescribed time.

Parties in Foreign Trade transactions are in a mutual distrust and take each other’s risk as they are exposed to different foreign exchange policies and regulations in different countries. Importer have the aim to collect the cost of goods sold while the buyer aims to receive contracted goods on time.

If the exporter acts upon the terms of the Letter of Credit and presents the requested documents to the bank in accordance with “Letter of Credit Terms and International Banking Standards” on time; then he acquires the right to receive the payment under the Letter of Credit. If the exporter does not comply with the terms of Letter of Credit, the issuing bank’s payment obligation in favor of the beneficiary is removed. Considering this aspect, Letter of Credit is a payment product which protects both the importer and the beneficiary.

Features

  • Protects both the exporter and the beneficiary.
  • May be issued as “at Sight”, “Deferred Payment”, “Acceptance”, “Negotiation” and “Mixed Payment”.

Parties

Applicant: An importer who applies to his bank for purchasing the goods or services subject to an LC and initiates the Letter of Credit process.

Issuing/Opening Bank: A bank which issues a letter of credit upon the instruction of an importer and oblige contingency annuity against the beneficiary under the Letter of Credit.

Beneficiary: An exporter on behalf of whom a letter of credit is issued.

Advising Bank: A bank which receives and advises a letter of credit.

Confirming Bank: A bank which undertake obligation of payment against beneficiary in addition to applicant banker’s payment with the beneficiary demand and accreditation of applicant bank.

Advantages

Assurance: Your company would be benefited from Vakıf Katılım’s respectability and reliability with the Letter of Credit.