IMM Letter of Credit: International Trade Finance using the appropriate Documentary Credit for your Credit Enhancement needs.
Documentary Letters of Credit are used in International Trade Finance to assist your Company’s Cash Flow situation.
We can open Letters of Credit to facilitate small or large Purchase Orders for Inventory Financing to augment our Purchase Order Financing Programs in addition to augmenting the banking abilities that you have.
Letter of Credit or LC | Standby Letter of Credit or SLBC | Documentary Letter of Credit or DLC | Bank Guarantee or BG | Performance Guarantee
Letters of Credit, Performance Guarantees and other types of Trade Instruments are created using our wide-ranging Global Banking Partners. If your Company needs Letters of Credit, complete the form below and we will respond to you quickly.
Documentary Letter of Credit Questions and Answers
- What is a Standby Letter of Credit (SBLC)?
- Why would someone need to use a Payment Guarantee?
- Are there different types of Documentary Credit?
- How is it determined which type of Letter of Credit is needed?
- How complicated is the process for acquiring Documentary Credit?
- How long does it take to have my Credit Enhancement in place?
- What should I expect to happen once I submit my application?
- Are there any types of Trading Programs that are available that can be done with different types of Letter of Credit such as Bank Guarantees, MTN or LTN Financial Instruments?
- What is involved in getting involved with one of your Trading Programs or Private Placement Programs?
- What are the average returns on your Trading Programs or Private Placement Programs?
1. What is a Standby Letter of Credit (SBLC)?
A Standby Letter of Credit is secondary payment or credit enhancement mechanism. A Financial Institution can issue a Standby Letter of Credit for a client to assure the recipient of the Documentary Credit Instrument of their capacity to pay in regards to the payment terms of a contract between the beneficiary and the client that the bank issues the SBLC for.
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2. Why would someone need to use a Payment Guarantee?
When companies have their exports increasing, so does the amount they are carrying in their International Accounts Receivable balances. Several Export Companies can be intimidated by the numerous puzzles and potential risks that come along with selling and shipping products to buyers in different countries as well as the foreign banks. Payment Guarantees in the form of Documentary Credit can serve as a Guaranteed Payment.
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3. Are there different types of Documentary Credit?
Yes, there are several types that are available. Below is a short description of each type:
- Unconfirmed Sight Credit: The Financial Institution that issues the Sight Credit will assume the Irrevocable Obligation on behalf of the importer (purchaser) for payment (on sight) to the recipient (exporter) subject when they present the required documentation before a predetermined time period as well as the completion of any other requirements as indicated in terms and conditions of sale. This is considered to be a COD or Cash on Delivery sale.
- Confirmed Sight Credit: In this circumstance both banks (issuing and confirming) are liable for payment to the export company as opposed to Unconfirmed where only the issuing bank is liable for payment.
- Unconfirmed Acceptance Credit: In this case it is only the drawee Financial Institution that is liable to the Export Company and causes acceptance for payment date of maturity per the Terms and Conditions of sale. Therefore there is an extended time period where the risk of credit and country are not mitigated.
- Confirmed Acceptance Credit: The Export Company will collect payment when due collectively from issuer and confirmation bank. Both accept the bill of exchange to be drawn upon them.
- Transferable Credits: The Distributor or Middleman (first beneficiary) can have his bank transfer the Credit Instrument (original credit) to the final supplier/producer (second beneficiary) either any portion of the credit they wish (full or in partial).
- Back-to-Back Documentary Credit is created, based on existing credit (original credit) to the benefit of the final supplier/producer.
- Assignment of Documentary Credit: In this circumstance the beneficiary of the Documentary Credit will designate all or a portion of the benefits of the Documentary Credit.
- Unconfirmed Deferred Documentary Credit: In this case it is only the issuing Financial Institution which is liable to the Export Company for remittance when due. Therefore there is an extended time period where the risk of credit and country are not mitigated.
- Confirmed Deferred Documentary Credit: Here the Export Company will be paid from both the issuing and the confirmation Financial Institution.
- Unconfirmed Negotiation Credit: The Export Company is entitled to an advance payment or an agreement to a payment advance from the Negotiating Financial Institution on when they present the required documents. Should the credit not be confirmed, the Negotiating Financial Institution has the ability to seek recourse from the Export Company. Just the issuing Financial Institution is accountable to the Export Company. Credit and country risk are not mitigated.
- Confirmed Negotiation Credit: The Export Company will receive payment from the confirmation Financial Institution for non-recourse negotiations. In this case, the Export Company will have first-class security.
- Standby Letter of Credit (SBLC): The Standby Letter of Credit or SBLC has been derived from banking legislation in the United States, which outlaws US Financial Institutions from accepting guarantee obligations via third party issuers.
- Revolving Documentary Credit: Revolving Documentary Credit refers to consignments over a several installments at predetermined times up to a predetermined amount. The amounts are generated in equivalent units to the amount of the initial payment. When used, the credit is automatically renewed consistently by the equivalent amount for a pre-set count of consignments. This is a rare kind Documentary Credit.
- Red/Green-Clause Documentary Credit: The Red-Clause Documentary Credit permits the Export Company is given an advance before presenting of the documents. In this case, he is pre-paid for the goods that are yet to be delivered which he can use to cover costs of production. A Green-Clause Documentary Credit is different from a Red-Clause Documentary Credit because in this case, the product must be in a warehouse prior to disbursements. The Export Company normally is obligated to present proof that the goods are warehoused in addition to the other predetermined documentation.
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4. How is it determined which type of Letter of Credit is needed?
In general, the Financial Institution that will be issuing the Documentary Credit will assist you with know which will suit your needs best, but in the end it is up to the buyer and seller of the goods to accept. The whole reason for the Documentary Credit is for Credit Enhancement. The seller wants to get paid and the buyer does not want to lose their money. Credit Enhancement devices will give these assurances.
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5. How complicated is the process for acquiring Documentary Credit?
The process itself is not overly complicated, but it is not cheap either. Depending on the size of the Letter of Credit you need, the cost could be as much as 2% of the face value of the Financial Instrument that your are seeking per month. You will need to demonstrate your ability to cover the costs of the transaction when you apply. This means you will need to furnish a Proof of Funds such as a current Bank Statement or Bank Comfort Letter. You will need to provide all the details of the transaction including who the receiving bank is and their contact information, what the product is via your sales agreement as well as all other relevant details to the transaction.
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6. How long does it take to have my Credit Enhancement in place?
It can be done in as little as 2 weeks from the time the full application has been submitted.
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7. What should I expect to happen once I submit my application?
After the application for Documentary Credit has been submitted along with the Proof of Funds you have available for the transaction, one of our Documentary Credit Specialists will contact you to review the information received and to discuss what additional items will be required, if any. The will ask you to verbally walk them through the transaction to see which product will be best for your purposes.
Once this has been determined, you will receive a draft of the Documentary Credit to be reviewed by the recipient party and their bank. Once they accept the Letter of Credit draft, they will be asked to sign off on the verbiage for their acceptance. Once this has happened, a formal agreement will be furnished to you for execution of the Letter of Credit.
When you sign and accept the agreement, funds will be required to be sent into an escrow account and our Documentary Credit Specialist will have the Letter of Credit issued per the agreement and the accepted draft. After is has been issued, you will receive a copy of the Financial Instrument and the funds that are held in escrow will be released for payment on the Letter of Credit.
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8. Are there any types of Trading Programs that are available that can be done with different types of Letter of Credit such as Bank Guarantees, MTN or LTN Financial Instruments?
Yes, there are. If you are interested in this type of Trading Program, we are able to facilitate this as well.
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9. What is involved in getting involved with one of your Trading Programs or Private Placement Programs (PPP)?
These programs change very quickly, To start the process the first thing that needs to happen is to show a verifiable Proof of Funds. As I mentioned, these Programs change often so we do not post what is currently available here on our site.
The minimum to get into one of our Programs currently is $2.5 million USD. The best way to approach this is to have a Proof of Funds made available to us which MUST be verifiable. You will then be asked to submit an application including a Letter of Interest. Once this has been reviewed and accepted, one of our Private Banking Specialists will be in touch with you to discuss the options that are available.
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10. What are the average returns on your Trading Programs or Private Placement Programs?
This we are not able to discuss in this forum. If you have the funds available to dedicate to one of our Programs, we ask that you show a Proof of Funds and then we can open discussions about returns.
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About Wade Henderson
Wade Henderson: Domestic and International Business Finance since 1995 specializing in challenge situations. "We prefer to find a way to get your loan done as opposed to finding a reason to turn it down.” Connect with me on Google+
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