How It Works:
Benefits to the Buyer:
- The Buyer and Seller enter into a sale contract and a PO/PI is issued by the buyer in favour of supplier.
- The Buyer (Applicant) arranges a LC in favour of the Seller (Beneficiary) covering the deal
- The Seller ships the goods and submits all the documents in terms of the LC within the validity of the LC and complies with all the other terms and conditions of LC
- The Seller is paid by the LC opening bank.
Benefits to the Seller:
- The Buyer is able to buy the goods and pay for them after shipment of goods
- There is no financial risk to the Buyer if the goods are not shipped after the order is placed
- The LC issuing Bank extends its credit to the Buyer which helps him to buy from new vendors.
- No funds are blocked until documents are received after the shipment, thereby improving cash flow
- The Buyer is also assured that goods are shipped in time failing which there is no liability to pay.
Export Letters of Credit
- The Seller does not run the risk of cancellation of the order as the LC is irrevocable.
- Payment is assured after shipment on submission of documents complying with the terms of the LC and other conditions. So he does not run the risk of non-payment after the shipment.
- It helps to raise finance for production of goods thereby meeting working capital requirements.
This service offers an assurance of payment for export shipments based on presentation of documents that comply with the Letter of Credit.
What Are Letters Of Credit (LOC) & Standby Letters Of Credit (SBLC)?
This facility facilitates international trade transactions. Since the buyer is in a different country, the exporter is assured of payment once the goods are shipped, against presentation of shipping documents per the LC terms.
This also facilitates the exporter to raise easy finance from his banker for manufacture of goods as the LC is irrevocable and backed by the undertaking by the issuing bank to pay against the presentation of documents per the LC terms and compliance of other conditions per the LC.
RNR-TCCL is able to provide access to one of the top Bank Guarantee providers, giving you the confidence to trust our services for your credit letter needs. Letters of Credit are provided on behalf of a seller, letting the buying party know that the seller is reliable and trustworthy to follow through on his promise to sell whatever asset he is offering. This type of letter is especially helpful in situations where the two parties have never before completed transactions.
How Can They Be Helpful?
A Standby Letter of Credit, conversely, is provided on behalf of the buyer, specifying that the buyer does, indeed, have the funds to proceed with this transaction, and will not default on the loan for any reason. Keep in mind that this is not the same as a Bank Guarantee. The institution providing the Standby Letter of Credit is not responsible for the obligation should the buyer not follow through.
By providing the necessary documentation to assist in proving a buyer or seller's trustworthiness, institutions such as RNR-TCCL can significantly help businesses and contribute to the furtherance of international trade. These transactions are risky, at best, since neither party has a pre-existing relationship. With the help of a Standby Letter of Credit, the parties will be able to ease their conscience about the risks. Without the inherent fear of the unknown, trade could become more common, and businesses could more easily help each other without the classic "will she or won't she" mentality. Additionally, these types of documents allow a business to show their trustworthiness to future contacts. By having this on file as part of previous projects, future clients can be assured that you are trustworthy, and committed to integrity in your work. Contact us today to let us help you with your Letter of Credit needs
Which One Is Most Useful For You?
There are many different uses for each type of Standby Letter of Credit or Bank Guarantee. With our knowledgeable staff, you will no longer be in doubt. These decisions are generally made on a case by case basis, and should be evaluated carefully. Should you find that you need to prove your reliability to another party for possible transactions, then a Letter of Credit will generally be your choice. However, if the type of proof you need also needs to be backed by a dependable and well-known source, then a Bank Guarantee is your solution. Letters of Credit are there as a 'reference', like when your professor from college writes to the Dean of Admissions of your Graduate School and lets him know that you are a student who gets their work done correctly, and efficiently. An institution providing a Standby Letter of Credit is saying "Trust this guy, I'll stand up for him". A Bank Guarantee is when the bank decides that they will front the money should you default on the loan you are about to partake of.