In any trade, whether domestic or international, there are various methods of payments. The methods of payments include, Advance payments, Documentary collections,LC Confirmation,Letter of credits and Bank Guarantees. The letter of credit, also known as documentary credit, is an instrument that serves to mitigate the risks inherent to any trade, particularly in the international trade, both on the buyer’s and the seller’s side. It still is the most effective and commonly used instrument to secure international as well as domestic commercial transactions. A documentary credit represents a bank’s contractual commitment to pay on behalf of the applicant (buyer), within a fixed period of time, in favour of the beneficiary (seller), upon presentation of exactly prescribed documents which must satisfy the requirements of the documentary credit.
points that need to be take into consideration regarding the confirmed letters of credit.
A Letter of Credit is a written instrument issued by a bank, at the request of its customer - the Importer (Buyer), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services, provided that the Exporter presents all documents called for, exactly as stipulated in the Letter of Credit, and meet all other terms and conditions set out in the LC. A LC is also commonly referred to as a Documentary Credit.
points that need to be take into consideration regarding the confirmed letters of credit.
- Only irrevocable letters of credit can be confirmed.
- During the issuance phase of a letter of credit, the issuing bank should "authorize or request" the potential confirming bank to add its confirmation to the letter of credit.
- No bank can be forced to add its confirmation to any letter of credit.
- If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation. (UCP 600 article 8 ii-d)
- Confirming a letter of credit does not mean that confirming bank is obligated to confirm any subsequent amendment or amendments.
- A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the letter of credit. (UCP 600 article 8 ii-b )
A Letter of Credit is a written instrument issued by a bank, at the request of its customer - the Importer (Buyer), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services, provided that the Exporter presents all documents called for, exactly as stipulated in the Letter of Credit, and meet all other terms and conditions set out in the LC. A LC is also commonly referred to as a Documentary Credit.