Documentary Letters of credit

A letter of credit — is a written obligation of a bank to pay a beneficiary (seller of goods or services) a certain amount upon timely submission of documents confirming the shipment of goods or provision of services as specified in the letter of credit.

Documentary letter of credit (L/C) — is a form of settlement whereby the issuing bank, on behalf of the Customer (Ordering party), undertakes to make a payment to the recipient of funds under the letter of credit (Beneficiary) upon proper submission of documents that meet the terms of the letter of credit.

A letter of credit is a convenient and popular tool not only as a form of payment under contracts, but also as a tool for organising financing of foreign economic operations.

Joint-Stock Company "COMINBANK" offers its customers promising cooperation in the field of trade operations using documentary letters of credit as a form of payment, which will significantly reduce risks and increase the profitability of corporate clients' business.

JSC "COMINBANK" offers to use the following documentary services on favourable terms:

• import letters of credit
• export letters of credit;
• letters of credit in UAH for settlement of transactions in Ukraine;
• obtaining financing from foreign banks under an import letter of credit;
• letters of credit with payment against documents submitted to the bank;
• letters of credit with deferred payment based on the documents submitted to the bank;
• transfer letters of credit.

Documentary transactions are the most efficient and necessary for the following legal entities:

• exporters and importers of goods or services;
• legal entities that do not know their counterparties sufficiently to bear the risks of non-delivery of goods or non-payment for the goods provided;
• legal entities that cooperate with counterparties from countries characterised as economically and politically unstable;
• legal entities that cooperate with counterparties from countries whose legal regulations require the use of a letter of credit;
• legal entities engaged in the sale and purchase of special order or very specific goods;
• importers/exporters who sell and purchase goods at unstable prices;
• legal entities that do not have sufficient cash resources and their suppliers are willing to defer payment against bank obligations in the form of a letter of credit.

Benefits of the letter of credit form of payment:

• the obligation to pay for the goods to the seller lies not with the buyer, but with the issuing bank;
• the buyer can improve its creditworthiness, and the seller can increase its confidence in receiving funds;
• the letter of credit is irrevocable, its terms cannot be changed or cancelled without the seller's consent;
• in order to receive payment under the letter of credit, the seller is obliged to provide the Bank with the documents under the letter of credit (documents confirming the shipment of goods);
• payment under the letter of credit is not made if all the terms and conditions of the letter of credit are not met within the agreed timeframe.

Basic conditions and scheme of the letter of credit form of payment

Scheme of the documentary letter of credit а

1. Conclusion of a foreign trade contract between the Importer and the Exporter.

2. The Importer concludes an agreement with its bank on opening a letter of credit in favour of the exporter.

3. Opening of the letter of credit in favour of the Exporter.

4. Advising the letter of credit to the Exporter.

5. Shipment of the goods by the Exporter in accordance with the terms and conditions of the letter of credit.

6. Provision of shipping documents to the bank for forwarding to the executing bank.

7. Forwarding of the shipping documents to the Importer's bank for verification and payment.

8. Provision of the shipping documents after verification to the Importer for receipt of the goods.

9. Provision of funds for payment under the letter of credit, in case of their absence at the time of payment, the Importer's bank provides a credit for payment under the letter of credit.

10. Transfer of payment from the Importer's Bank to the Exporter's Bank.

A documentary letter of credit is also used as a payment instrument in transactions between residents of Ukraine. In this case, the currency of the letter of credit is UAH. The letter of credit process does not change from the above, with the seller's position being similar to that of an exporter and the buyer's being similar to that of an importer.