Trade Finance and Guarantees

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Lettters of Credits (L/C)

Owing to an experienced staff, a comprehensive network of partner-banks and trade finance technologies, ARMSWISSBANK is a reliable intermediary for its clients in international trade. In this sphere the letters of credit, documentary collections and guarantees offered by ARMSWISSBANK will help both buyers and sellers to decrease their risks in international trade operations.

Letters of Credit (L/C),
also known as Documentary Credits (DC)

A bank-to-bank commitment of payment in favor of an exporter(supplier), guaranteeing that it will be made upon presentation of required documents, in compliance with terms set by the buyer. Like Documentary Collections, DCs are governed by a set of rules adopted by the International Chamber of Commerce (ICC), which are called "UniformCustoms and Practice" known as UCP500.

Terms

Here are the following types of Documentary Credits:

If an exporter has any concerns about the circumstances which may prevent payment being made, the exporter may request the importer too pen Confirmed DC, which is subject to confirm by the exporter trusted bank. In case the importer’s bank doesn’t make the payment, the DC confirmed bank should do so. The DC "Confirmation" moves the bank or any other risk issues to the bank, which adds its confirmation (the Advising bank) and notifies the DC to the exporter. The price of such confirmation will obviously depend upon the level of perceived risks to be covered. Banks can often provide indicative pricing for confirmations prior to the arrival of the DC, so that costs can bee stimated.

Unconfirmed The payment commitment within the Unconfirmed DC is met by the buyer's (Issuing) bank only.

Irrevocable: The terms and conditions within the Irrevocable DC cannot be changed without the express agreement of exporter (beneficiary).

Revocable: The conditions mentioned in Revocable DCscan be changed unilaterally by the buyer. As these DCs carry add itionalrisks for the exporter, they are rarely used.

Standby Letters of Credit (SBLCs) or Bank Guarantees

SBLCs are similar to Bank Guarantees. The bank obliges to make the payment to the seller (supplier) by SBLCs, in case the buyer does not perform his obligations towards the seller by the date fixedin the agreement. They can be particularly useful to cover an underlying financial risk where multiple payments are to be made, possibly as part of an agreed upon schedule. However, they do not offer the documentary control of DCs to buyers and, as such, they are an unconditional guarantee.

Terms

Bank Guarantees

The bank guarantee is an instrument by which the bank committs to pay the seller (the supplier) when the customer doesn’t discharge his liabilities towards the seller within contractual period.

The following types of guarantees are offered:

Performance guarantee- The stakeholder isguaranteed to receive reimbursement in the amount of the guarantee ifthe counterpart doesn’t discharge his contractual liabilities.

Advance payment guarantee- The stakeholder is guaranteed to receive his advance payment back if the orderer doesn’t discharge his contractual liabilities (e.g. non-delivery of goods)

Tender guarantee- The tender organizer is guaranteed to receive reimbursement in the amount of the guarantee, if the orderer in case of tender win refuses to conclude a contract or isunable to discharge his contractual liabilities.

Terms for bank guarantees

Collection

Documentary collection

In international banking practice Documentary Collection process is governed by a set of rules, adopted by the International Chamber of Commerce (ICC) called "Uniform Rules for Collections" document number522 (URC522). There are two types of Documentary Collection, which are usually determined by the payment terms agreed within a commercial contract.

Terms

Documents Against Payment (D/P): Usually used when the seller’s bank authorizes the buyer’s bank to provide the documents certifying the ownership of the goods, only when the payment has been made by the buyer.

Documents Against Acceptance (D/A): Used when accredit period is agreed between the buyer and the seller. Against the written commitment the buyer receives the documents, certifying the ownership of the goods, to make the payment for those goods in the future.

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