Import Letter of Credit

Letters of Credit Issuance

A credit facility issued by Trade and Merchant Trust to its clients’ banks undertaking payment(s) on behalf of our corporate customers to a beneficiary/bank against presentation of documents complying with the Letter of Credit terms. Reduces cross border trading risks, increases cash flow and operating efficiencies. The service facilitates the settlement of international business trade transactions and ensures that products/goods that are ordered from overseas suppliers are shipped according to the agreed terms – and if so, assures that payment is perfected.

Letters of Credit :

A standard, commercial letter of credit (LC) is a document issued by a financial institution, used in trade finance, which provides an irrevocable payment undertaking against submission of documents and compliance of other conditions as per LC terms. Letters of credit are used primarily in international trade transactions, for deals between a supplier in one country and a buyer in another. LC is issued at the request of the buyer (Applicant) in favour of supplier (Beneficiary) by the applicant’s bank (Issuing Bank). This service eliminates the risk of non-payment in international trade transactions.

How It Works:

  • The Buyer and Seller enter into a sale contract and a PO/PI is issued by the buyer in favour of the supplier.
  • The Buyer (Applicant) arranges an LC in favour of the Seller (Beneficiary) covering the deal
  • The Seller ships the goods and submits all the documents in terms of the LC within the validity of the LC and complies with all the other terms and conditions of LC
  • The Seller is paid by the LC opening bank.

Benefits to the Buyer:

  • The Buyer is able to buy the goods and pay for them after the shipment of goods
  • There is no financial risk to the Buyer if the goods are not shipped after the order is placed
  • The LC issuing Bank extends its credit to the Buyer which helps him to buy from new vendors.
  • No funds are blocked until documents are received after the shipment, thereby improving cash flow
  • The Buyer is also assured that goods are shipped in time failing which there is no liability to pay.

Benefits to the Seller:

  • The Seller does not run the risk of cancellation of the order as the LC is irrevocable.
  • Payment is assured after shipment on submission of documents complying with the terms of the LC and other conditions. So he does not run the risk of non- payment after the shipment.
  • It helps to raise finance for the production of goods thereby meeting working capital requirements.

Export Letter of Credit

This service offers an assurance of payment for export shipments based on the presentation of documents that comply with the Letter of Credit.

This facility facilitates international trade transactions. Since the buyer is in a different country, the exporter is assured of payment once the goods are shipped, against presentation of shipping documents per the LC terms.

This also facilitates the exporter to raise easy finance from his banker for the manufacture of goods as the LC is irrevocable and backed by the undertaking by the issuing bank to pay against the presentation of documents per the LC terms and compliance of other conditions per the LC.

Fiduciary and Lock-Box services

Fiduciary and Lock-Box services are available in all major currencies

Through our banking relationships in New York, London, Cyprus and South Africa, Trade and Merchant Trust has been instrumental in establishing the confidence that sellers of all types of goods and merchandise need to maintain throughout each

transaction that they enter into with their chosen counterparties.

Trade and Merchant Trust can provide lock-box and safekeeping services in order to receive payment for goods delivered to third parties, and distribute the collected funds to the parties associated with the transaction.

Documentary Collections

We also facilitate international trade transactions by providing a documentary collection facility. Under this arrangement, the supplier knows that the shipping documents will be released to the buyer against payment (DP) or acceptance (DA) of the draft, based on their payment agreement.

Documentary collections are of two types

  • Document against payment (DP) – Sight Documents
  • Document against acceptance (DA) – Term Documents

Under this service, shipping documents are sent to us by the Seller’s bank to be delivered to the Buyer as per their instructions.

The Seller is assured that documents are delivered to the Buyer against payment (DP documents)/ or acceptance to pay on the due date (DA document) as per their terms of payment.

The Buyer is able to get the goods without making any payment until the goods are shipped by the Seller and the shipping documents are received at our end. The Buyer gets delivery of the documents as per the agreed payment terms. DA terms enable the Buyer to get credit from the supplier.