Exchange of goods and services in international market is a rather complex and risky process: goods and financial resources are exchanged outside the borders of the country and is often connected with concerns about whether sellers and buyers are able to respect mutually binding commitments. SEB bank Letter of Credit (as well as Bank Guarantee/Pledge or Documentary Collection) will considerably lower your company import or export deal risks and will provide guarantees to both exporters and importers of goods.
Letter of Credit for both transaction partners – for exporter of goods and for importer of goods – provides a guarantee of payment for goods or services. The payment is being made in exchange for presenting documents confirming the delivery of goods and only when all the obligations, set fourth in the Letter of Credit, have been fulfilled:
Letter of Credit is a separate transaction, independent of trade or other agreements – all sides involved in Letter of Credit transaction are working only with documents, not goods or services that these documents refer to. The bank undertakes risk about your transaction by issuing a Letter of Credit, therefore the service fee for Letter of Credit will be comparatively more expensive than the alternative – Documentary Collection. Letter of Credit does not exclude other means of payment – you can combine it with the usual order of payments. International transactions practice shows that most often it is the case – for instance, you can include 10% advance payment in the agreement, 70 % payment with Letter of Credit and 20% after payment etc.
Letter of Credit is a secure and internationally recognized form of payment – it is regulated by the regulations of the International Chamber of Commerce "Best Practices for Transitions with Credit Letters (UCP 600, 2007 rev.)".
For lowering transaction risks you can choose also other trade financing transactions, for instance, Documentary Collection or Bank Guarantee.
Read more about Documentary Collection
Read more about Bank Guarantee
Documentary Collection |
Letter of Credit |
Bank Guarantee /Pledge |
---|---|---|
Type of payment |
Type of payment |
Instrument for limiting risk |
Payment for trading documents |
Payment for trading documents |
Takes place without making a payment |
Documents are not returned to the buyer without payment or pledge to pay for goods within a certain time frame |
Documents are not returned to the buyer without payment or pledge to pay for goods within a certain time frame |
Documents can be requested only in case of guarantee payment
|
Bank does not have a commitment to pay |
Bank has a commitment to pay |
Bank has a commitment to pay |
Buyer and seller conclude a trade agreement, agreeing on delivery of goods, quantity, quality and payment that will be made with a Letter of Credit.
Buyer delegates its bank (issuing bank) to open a Letter of Credit on behalf of seller in accordance with conditions agreed by both parties. Letter of Credit can include in your opinion most important conditions of the transaction – description of goods, price per unit, term of payment and a list of documents that the seller has to submit to the bank. The bank will evaluate your security.
The issuing bank sends the Letter of Credit to announcing bank that usually is located in the country where the seller of goods is registered.
Seller's bank (announcing bank) announces to the seller about the opened Letter of Credit and makes aware of its conditions.
When conditions of the Letter of Credit are received, the seller compares them with the trade agreement, If Letter of Credit does not correspond to the requirements of the agreement, the seller has the right to require changes in the Letter of Credit. Please note that Letter of Credit is a document that cannot be revoked therefore it cannot be cancelled or annulled without agreement from all parties.
If the Letter of Credit corresponds to the requirements of the agreement, the seller sends goods to the buyer and submits documents required in the Letter of Credit to the announcing bank.
Announcing bank checks the submitted documents. If they correspond to the conditions of the Letter of Credit, the bank can pay for them in the form agreed on in the Letter of Credit – by making immediate or deferred payment, by acceptance or by negotiation of Letter of Credit documents.
Announcing bank sends the documents to the issuing bank. After repeated check of the documents the issuing bank makes payment to the announcing bank that makes settlement with the seller.
Issuing bank takes off the respective amount from the buyers account and returns the documents to the buyer, as a result of which the goods are transferred for the use of the buyer.
In force from | In force to | |
---|---|---|
Irrevocable Letter of credit application |
19.04.2019
|
In force
|
Provisions for the issue of letters of credit |
13.02.2017
|
In force
|
Services | Fees |
---|---|
Letter of credit line1 | |
Processing of the Letter of credit line, increasing the limit | 0,5%, min 150.00 EUR |
Term prolongation for a Letter of credit line | 0,2%, min 150.00 EUR |
Other changes to the Letter of credit line agreement upon the customer's request | 0,5%, min 50.00 EUR |
Import letters of credit |
|
Issue of the Letter of Credit | 100.00 EUR |
Issuance of a letter of credit within the scope of the Letter of credit line | By agreement, min 70.00 EUR |
Preparation and coordination of letter of credit template | By agreement, min 70.00 EUR |
Amendment/cancellation of letter of credit | 70.00 EUR |
Handling and payment of documents | 0,20%, min 85.00 EUR |
Discrepancy fee | 70.00 EUR/ 80.00 USD |
Letter of credit utilisation (depending on the type of collateral): | |
• type of collateral: cash cover in SEB bank |
0,2% of the amount of the credit letter, min 70.00 EUR |
• another collateral | By agreement, min. 70.00 EUR |
Deferred payment fee | 70.00 EUR |
Export letters of credit |
|
Preparation and coordination of letter of credit template | By agreement, min 70.00 EUR |
Advice of letter of credit | 85.00 EUR |
Advising of amendment/cancellation/non-utilisation of a letter of credit | 70.00 EUR |
Preliminary checking of letter of credit documents2 | 70.00 EUR |
Handling and payment of documents | 0,20%, min 85.00 EUR |
Confirmation of a letter of credit | According to risk, min. 100.00 EUR |
Discounting of documents | According to risk, min. 100.00 EUR |
Preparation/advise of assignment of proceeds | 70.00 EUR |
Transfer of a letter of credit | 0,2%, min 150.00 EUR |
Deferred payment fee | 70.00 EUR |
1 The commission fee must be paid on the day the agreement or amendments are signed.
2 The fee is applied in case of more than one document undergo prior inspection.
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