A Letter of Credit (LC) is a powerful financial instrument that facilitates international trading, streamlining export-import and infusing trust & credibility in the process. Through this letter, a financial institution or bank such as SUISSE BANK underwrites to make a payment or facilitate the delivery of goods on behalf of its client if the latter fails to fulfil its duties as mentioned in the trade agreement.
In case, the parties to the trade are unable to meet their obligations, the responsibility of fulfilling the contract vests upon the financial institution or bank underwriting such letter of credit. The bank functions as a third-party whose primary objective is to streamline the entire trading process and protect the interests of the beneficiary. However, to get an LC, the client needs to comply with certain obligations and conditions.
Types of Letter of Credit in International Trading
SUISSE BANK, or other banking & financial institutions, offer different types of letter of credit. These are:
• Commercial Letter of Credit: Here, the underwriting bank makes the payment directly to the beneficiary in case the client fails to meet its obligations.
• Traveller’s Letter of Credit: Though this is not directly related to trading the LC is suitable for travellers and ensures that the issuing bank will honour all drafts made in a foreign bank. It helps facilitate international payments in a hassle-free way.
• Revolving Letter of Credit: In this form of a letter of credit, the bank allows the client to make several draws within a particular limit and time period.
• Standby Letter of Credit: Through this secondary process of trade payment, the underwriting bank only pays to the beneficiary when the holder/client fails to make the payment due to certain circumstances.
Key Functions of a Letter of Credit
A letter of credit can be availed for 30 days, 60 days and 90 days, depending on the type of trading the company is involved with. This indicates that the payment amount mentioned in the letter of credit is due for 30 days, 60 days and 90 days respectively. Here’s how a typical letter of credit works:
• Protecting the interests of the seller: Most often trading involves the risk of non-payment on behalf of the buyer. Therefore, sellers are apprehensive about selling goods in bulk without any valid payment confirmation. This is particularly true for buyers who do not yet have strong creditworthiness and integrity in the market.
This type of LC guarantees timely payment to the supplier or exporter (beneficiary) in case the buyer or importer (client) fails to fulfil its payment obligations. The payment can be made in full or as advance to help the seller facilitate the production and shipping process. The LC, when issued by a reputable banking institution like SUISSE BANK, helps infuse trust and credibility in the trading process.
• Protecting the interests of the buyer: Another type of LC, also known as the Standby Letter of Credit, is issued to protect the buyer’s or importer’s interests in case the goods are not received on time or in the specification mentioned in the agreement. This works by either penalising the exporter for non-performance or allowing the buyer to have some other supplier to have the goods delivered.
Make sure you work only with a trusted banking institution like SUISSE BANK that can help you with all kinds of Letter of Credit.
In addition to this, SUISSE BANK provides a wide range of benefits to its approved offshore clients. By opening an individual or corporate account with the bank, you can avail the following services:
• No need to be present in-person to open the bank account; digital KYC onboarding process takes less than 30 minutes to open the account, ready for use
• High levels of data protection through SSL encryption
• Private and corporate digital account that you can access anytime and from anywhere
• Debit MasterCard with exclusive concierge services, personalised travel assistance and much more
• Cryptocurrency trading
• Trade financing through an integrated line of financial instruments to facilitate export-import and business expansion
• Asset diversification and investment portfolio management to ensure risk-calculated investments with high returns
Approved clients can enjoy all these services, and much more, through SUISSE BANK’s all-in-one wallet. Also, get 24/7 support to manage everything related to your account.