Letters of Credit

Key Benefits

• Secure, fast payment - other than payment in advance, L/Cs are the safest and fastest method of receiving payments
• Peace of mind - for the seller, L/Cs provide reassurance that they will get paid, provided their documents match the terms and conditions of the credit
• Opens new markets - L/Cs provide the safety net to trade in markets where open account trading may not be appropriate
• Customs and law - In some countries, law or tradition states trade must be supported by an L/C
• Worldwide standards - L/Cs are subject to the globally recognised International Chamber of Commerce, Uniform Customs and Practice (UCP 600) for Documentary Credit
• Guidelines Irrevocable - they cannot be revoked or amended without all parties agreeing to cancellation
• Improved Cashflow - can be used by the Importer to negotiate extended credit terms from the Exporter

As an Exporter you are receiving:

(a) Sight: when the Bank sights the documents
or
(b) Acceptance: at a future date that the Importer and Exporter have agreed on e.g. 120 days from Bill of Lading date.

In practical terms this means that if you are an Importer, your Bank (Ulster Bank), in opening the Letter of Credit on your behalf, is conditionally guaranteeing payment to the Exporter provided documents submitted by the Exporter comply with all the conditions specified. For this reason you will need to arrange a credit limit with your Bank. As an Exporter you are receiving the conditional guarantee of payment from the overseas Bank opening the Documentary Credit on behalf of the Importer. You can also look for added security in the form of a Confirmation (or additional guarantee) by Ulster Bank.

How does a Letter of Credit operate?