Letters of Credit
Letters of credit are considered the most common means used in international commerce and financing. Both the source and importer secure their rights if they comply with the terms they agree on. Banks act as a mediator that undertakes responsibility in line with specific work conditions and procedures. Banks issue a statement of payment if they secure the incoming of bills in line with the agreed terms and conditions.
Features of the Service
- Secure means for the seller to receive the price of the goods from the bank’s credit and not from the purchaser. The means also ensures that the seller receives the value of the goods in exchange for the letters of credit that are compatible with his terms and conditions.
- The seller receives the value of the goods upon presenting the shipping letters of credit without waiting for the purchaser to receive the goods.
- The seller can receive a credit which he can use in a back-to-back credit.
- Usually the purchaser is asked to pay the amount upon receiving the letters of credit and not at the time it is paid to the supplier abroad.
- Purchaser is assured that his bank will refuse to make any payment unless the seller complies with the specific credit terms and conditions.
- The purchaser can receive credit which he can use in banking facilities or refinancing “purchasers’ facilities.”
- Facilitate commercial operations.
- Activate role of banks in the commercial operation.
Procedure for issuing a Letter of Credit (Import)
- Customers submit an application to get a letter of credit at the nearest branch after signing the letters of credit general terms and conditions.
- Customers present information required for this purpose whether an initial invoice or price quotation or a contract with the source.
- The competent employee at the bank will review the information with the customer, give guidance and counseling for the benefit of the customer.
- After the approval of the general administration of the customer’s application, a letter of credit will be issued and the source abroad will be notified.
Procedures for Incoming Letter of Credit Notification (Export)
- The correspondent bank abroad will issue a letter of credit for the benefit of our customer.
- The Commerce and International Settlement Department at the bank examines carefully the incoming letter of credit.
- Customer is notified about the incoming letter of credit and he/she reviews it to address weaknesses if any.
- When the customer ships the goods, he/she will submit the required documents to the bank for examination and auditing. The bank will then send the documents to the bank that issued the letter of credit in order to collect the value of the goods for the benefit of the bank’s customer.