Letters Of Credit
There are many different types of letters of credit that we require in order to purchase our commodities. The type of LC depends on each product and then, again with each seller. As each supplier has their own payment terms, we cannot standardize them and make them easier for everyone, but we can surely work with them to make them as easy as possible for our customers. The types of letters of credit are:
ARDLCAuto Revolving Letter of Credit. This simply means that its a standard LC but every month the LC is replenished by the emitter’s bank account using funds from their account so no new LC needs to be opened every time.
SBLCStandby Letter of Credit. SBLC is the irrevocable commitment of the bank to compensate the beneficiary in the event of default of payment of the debtor. SBLC are designed according to what the International Stand-By Rules And Practices or ISP98 establish.
SBLC guarantee the exporter to receive payment for the merchandise if the importer does not comply with its responsibility. SBLC are attractive for exporters not only because of what was stated before but also because of its easy way to use and manage. However, it is mostly recommended for transactions between commercial partners that have already worked together in repeated occasions.
FFDLCFully Funded Documentary Letter of Credit. A written promise of payment provided by a buyer to a seller that is guaranteed to clear by a particular bank. Once an FFDLC document is presented by the seller to the involved bank, the bank is obliged to remit full payment to the seller.
The seller may be required to fulfill certain conditions, such as providing proof of shipment of the goods sold to the buyer, before collecting payment from the bank. This method of payment provides assurance to the seller that the buyer has the necessary funds for the transaction and ready for remittance to the seller upon completion of the sale.
Documentary Irrevocable Letter of Credit.This is the most common form of credit used in international trade. Irrevocable credits may not be modified or canceled by the buyer. The buyer’s issuing bank must follow through with payment to the seller so long as the seller complies with the conditions listed in the letter of credit. Changes in the credit must be approved by both the buyer and the seller. If the documentary letter of credit does not mention whether it is revocable or irrevocable, it automatically defaults to irrevocable.