05.04.2018: DOCUMENTARY LETTER OF CREDIT

SUISSE BANK PLC is an attractive partner for financing transactions and extremely interesting for market participants in particular who want to save costs in the field of trade financing. We have very significant levels of sales growth in this sector in the financial year of 2011, especially in the documentary letter of credit/letter of credit (LC) field.

So, what is a documentary letter of credit and what is the sequence of events?

A letter of credit is a contractual agreement in which SUISSE BANK PLC makes an undertaking to an importer or the applicant for a letter of credit to pay out an amount stated in the letter of credit in accordance with its instructions to an exporter or beneficiary upon the fulfilment of the conditions stipulated. SUISSE BANK PLC helps to reconcile the interests of the purchaser and the seller of a good.

Our documentary letter of credit is a directly enforceable, abstract, conditional payment undertaking on the part of SUISSE BANK PLC acting as the partner of an importer. Abstract means that the payment undertaking of SUISSE BANK PLC is legally detached from the underlying transaction and stands independently alongside the purchase contract. Conditional means that the fulfilment of the payment undertaking is tied to conditions which always have to be laid down in writing.

The purchaser is provided with the security through the documentary letter of credit that they must only pay if the seller has delivered the goods ordered and has proved this by submitting the proper documentation. The purchaser is provided with the security that they will receive the sales proceeds following delivery of the goods and following submission of the complete documents to SUISSE BANK PLC.

A purchase contract is initially concluded based on a commodities transaction which envisages a documentary letter of credit as a condition of payment to initiate the sequence.

The provider of the letter of credit (importer) commissions SUISSE BANK PLC to issue a letter of credit in favour of the beneficiary (exporter) subject to recourse provisions. SUISSE BANK PLC issues the letter of credit irrevocably in favour of the exporter. In this case it makes use of a bank in the exporter’s country specified by the importer for processing the LC. The goods are described in terms of their type, quantity, quality and packaging in the letter of credit and deadlines are set for the shipment of the goods from the loading location to the location where the goods are unloaded and for submission of the documents. In addition, all the documents which trigger payment of the letter of credit are specified:

- commercial invoice;
- certificate of origin;
- freight invoice;
- packing list;
- quality certificates;
- pre-shipment inspection certificates;
- shipping documents:

  • express courier receipt, airway bill,
  • bill of lading,
  • forwarder’s certificate of receipt,
  • confirmation of unloading,
  • transport insurance.

SUISSE BANK PLC gives an irrevocable undertaking to the exporter to make a payment to it once the documentary conditions of the letter of credit have been met in full. The exporter’s bank confirms the issuing of the letter of credit to the exporter after inspecting it. Once notification has been provided, the exporter inspects whether the letter of credit corresponds to the purchase agreement. Following this he loads the goods at the shipment location and receives the corresponding documents, which he subsequently submits to his bank along with the other documents demanded in the letter of credit. After careful inspection of the documents, payment is either made to the exporter (if the financial institute has been assigned the task of being the payment authority upon the letter of credit being issued) or they are passed to SUISSE BANK PLC. Our bank then makes the payment after determining that the documents are in order, and hands the documents over to the importer. The importer can then obtain possession of the goods with the shipping documents.