Commercial Letter of Credit

A Commercial Letter of Credit is a financial instrument used in international trade, issued by a creditworthy bank to guarantee payment to an exporter. This tool provides security by ensuring that the seller receives the agreed amount within a specified time frame once all stipulated terms and conditions are fulfilled.

Key Components:

• Issuing Bank: The bank that issues the letter of credit on behalf of the buyer.
• Beneficiary: The exporter or seller who receives payment.
• Applicant: The buyer who requests the letter of credit from their bank.
• Advising Bank: The bank that informs the seller about the letter of credit.
• Confirming Bank: The bank that guarantees payment even if the issuing bank fails to pay.

Examples of Use:

• Export transactions where goods are shipped overseas.
• Large-scale projects requiring multiple shipments.
• Situations involving new trading partners where trust is not yet established.

Conditions for Payment:

• Presentation of shipping documents like bill of lading and commercial invoice.
• Compliance with stipulated terms including quantity, quality, and delivery timelines.
• Adherence to International Chamber of Commerce rules, particularly UCP 600.