Letter of Credit Document Preparation

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Why risk paying for imports in advance? With a Letter of Credit, payment is released only once goods are delivered, protecting both you and the Seller.

When you purchase something from a Seller in another country, you and/or the Seller may stipulate that a Letter of Credit (LC) be used to guarantee both payment and delivery. LCs are contracts issued by the buyer/importer’s bank and are based on the terms stipulated in the purchase order. There are several types of LCs, depending on the needs of the Buyer and Seller (see “Additional Info” below).

 

Letters of Credits protect both you and the Seller, and are therefore essential to trade flow. Many sellers want to be paid in advance or on credit. With an LC, you pay for a shipment upon sight, or within the pre-agreed upon time thereafter. This protects you from the non-delivery of goods you’ve already paid for. The Seller is likewise protected from payment delays once an order has been delivered, or from not getting paid at all. It also protects Sellers from Buyers refusing to take possession of a shipment without a valid reason, as stated in the agreement. You take possession of the cargo and the Seller is paid by the issuing bank only once the terms of the LC are fulfilled.

 

DB Schenker’s Letter of Credit service greatly simplifies the LC application process. It allows you to easily and securely upload all the required documents to your bank, and then track your Letter of Credit throughout the process.

 

Why risk paying in advance? DB Schenker takes the complexities of the LC application process, making it easier and faster than ever to get a Letter of Credit.

Have questions? Contact us and speak with a Letter of Credit Expert!

Most Common Types of Letters of Credit (LC)

 

Irrevocable Letter of Credit: This letter of credit is a legally binding contract between a seller and buyer, that guarantees payment by the buyer’s bank — as long as the contract terms have been completed to specifications (in order, without discrepancies). Any changes (amendments) or cancellation of the LC (except when it is expired) is done by the applicant through the issuing bank. However, any changes / cancellation of the letter of credit contract must be authenticated and approved by the beneficiary.

 

Standby: Normally, this type of LC functions like a guarantee. A standby letter of credit can be drawn against only upon performance of services or financial obligation default. It is an undertaking of the buyer’s bank (issuing bank).

 

Unconfirmed: The letter of credit bears only the obligation of the issuing bank to guarantee documents are in order (without discrepancies) and to guarantee payment to the seller / exporter (beneficiary). The beneficiary should look to the credit worthiness of only the issuing bank, and not to any intermediary (Article 7 UCP 600)* to decide if the export LC should be confirmed to protect payment.

 

Confirmed: A credit in which a second obligation is added to the letter of credit by another bank (Article 8 UCP 600)*

 

Sight: Shipment is paid for by the advising bank (US-based) once documents have been examined and found in order (if the LC is confirmed) or the issuing bank (buyer’s bank) will provide payment once documents have been examined and found in order (if the LC is unconfirmed).

 

Time, Usance: The draft honored by accepting documents for payment at a future date. Payment is delayed until the maturity of the draft.

 

Transferable Credit: This letter of credit type can be transferred by the original seller/exporter (beneficiary) to one or more parties. It is normally used when the first beneficiary does not supply the merchandise, but is a middleman and wants to transfer all or part of the rights to the actual supplier (Article 38 UCP 600)**.

 

* **UCP 600 is the Uniform Customs and Practice for Documentary Credits; a set of rules on the issuance and use of letters of credit. The UCP is utilized by bankers and commercial parties in trade finance.

 

Schenker Trade Advisory Services provides comprehensive Export Letter of Credit (LC) processing.

 

Our services include:

  • Completing all documents requested in a letter of credit
  • Emailing / Facsimile of documents to foreign countries (per LC)
  • Chamberization / Notary certification (completed in-house)
  • Legalization (completed in-house)
  • Submitting all original LC documents to the bank for payment

Web-based integration network:

  • Upload capability of your documents to a secure database
  • Access to billing invoices, documents for completed shipments, real time tracking LC processing
  • Personal assistance 8:00am-9pm EST

Please call us at 1-844-SCH ELC1 (1-844-724-3521) or email eLC@dbschenker.com for additional assistance.

Abbreviations

CBPCustoms and Border Protection
ACEAutomated Commercial Environment
HTSHarmonized Tariff Schedule
FTAFederal Transite Administration

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