Trade Finance Instruments

A letter of credit – also known as a documentary credit – is a bank-to-bank commitment of payment in favor of an exporter (supplier), guaranteeing that it will be made upon presentation of the required documents. Documentary credits are governed by a set of rules adopted by the International Chamber of Commerce (ICC), called Uniform Customs and Practice for Documentary Credits (known as UCP600).

Documentary credits are available in the following forms:

  • Confirmed- the credit is confirmed by both the exporter's and importer's banks (used when an exporter is concerned that the payment may not be made by the issuing bank).
  • Unconfirmed - the payment commitment is met by the buyer's (issuing) bank only.
  • Irrevocable - the terms and conditions cannot be changed without the express agreement of exporter (beneficiary).
  • Revocable - the conditions can be changed unilaterally by the buyer. (As revocable documentary credits carry additional risks for the exporter, they are rarely used.)

Terms

Standby letters of credit

Standby letters of credit oblige the bank to pay the seller (supplier) should the buyer fail to honor their obligations by the date fixed in the agreement. They can be particularly useful in covering an underlying financial risk where multiple payments are to be made. They do not offer the documentary control of documentary credits, however, and are therefore an unconditional guarantee.

Bank Guarantees

We offer the following types of guarantees:

  • Performance guarantee - the stakeholder is guaranteed reimbursement if the counterpart fails to discharge their contractual liabilities.
  • Advance payment guarantee - the stakeholder can recover any advance payments if the seller fails to fulfill the terms and conditions governing the purchase, e.g. non-delivery of goods.
  • Tender guarantee - the tender organizer is guaranteed reimbursement if the tendering party refuses to conclude a contract or is unable to fulfill their contractual liabilities.

Bank guarantee terms

A documentary collection is a secure international trade procedure whereby the exporter's bank forwards commercial documents to the importer's bank, which then releases those documents to the importer in return for payment or a commitment to pay. Documentary collections are governed by a set of rules adopted by the International Chamber of Commerce (ICC), called "Uniform Rules for Collections" (URC522).

There are two types of documentary collection, determined by the payment terms agreed within a commercial contract.

  • Documents against payment - documents certifying the ownership of the goods are released to the buyer only when payment has been made.
  • Documents against acceptance- the buyer receives documents certifying the ownership of the goods against their agreement to pay for those goods at a specified point in the future.

Documentary collection terms