The best way to minimize payments risks in the international trade for the export-import companies is to use documentary letters of credits.
Documentary letter of credit is an irrevocable commitment of the bank (issuing bank), which has issued a documentary letter of credit at the applicant’s (buyer’s) request to pay in favour of beneficiary (seller) the amount specified in the letter of credits in case beneficiary present according to the letters of credit’s terms the comply set of documents confirming shipment of the goods (performance of the services).
Special issues of the payments by means of documentary letters of credit:
- cheaper transaction comparing with credit facility;
- bank acts as intermediary in the payments between buyer and seller;
- additional examination of shipping documents by the Bank’s experts;
- documentary letter of credit is a separate agreement from purchase and sale underlying contract;
- the bank undertakes to honour strictly on the basis of the letter of credit terms irrevocably committed in spite the letter of credit refers to the respective purchase and sale contract;
- bank honours the documentary letter of credit’s terms (make a payment) upon document’s presentation that Bank’s determines comply.
The main terms for the letters of credits issue by JSC “PIRAEUS BANK ICB” :
- Currency of the Letter of credit: any currency that corresponds the currency of the contract.
- Amount of the letter of credit and period of validity: corresponds the underlying contract.
- Collateral: cash- cover on JSC “PIRAEUS BANK ICB” account, other liquid collateral.