Import Finance Facility | Letter of Credit | SBLC | Financial Instruments (2024)

FAQs

Import Finance Facility | Letter of Credit | SBLC | Financial Instruments? ›

A Standby Letter of Credit (SBLC) is a valuable financial instrument that provides assurance of payment to beneficiaries in various business transactions. It is often used as a secondary payment mechanism, ensuring that the beneficiary will receive payment if the applicant fails to fulfill their obligations.

An Import LC is one of the most secure methods of importing goods and it allows you to control shipping dates or facilitates a shipment schedule. A revolving letter of credit is a single letter of credit that covers multiple transactions over a long period of time.

As such, trade finance is an umbrella term that covers a variety of financial techniques and instruments used by importers and exporters. These include letters of credit (LCs), bonds, guarantees, purchase order finance, stock finance, structured commodity finance, and invoice finance (discounting and factoring).

A letter of credit, or a credit letter, is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. If the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

Letters of credit (also know as documentary credits) are payment instruments that constitute a definite undertaking of the issuer (“the issuing bank”) on the instruction of the buyer (“applicant”) to pay a certain specified amount to a seller (“the beneficiary”) at sight or on a future determinable date (“the maturity ...

An import letter of credit is issued by the buyer's financial institution, which means the bank will pay the exporter if the buyer does not pay on time. An export letter of credit is an import letter of credit received by the seller's bank.

For export financing, where the exporter's bank is involved, the lender sends the appropriate funds to use as a deferred payment. For import financing, it's the importer's bank that pays the exporter, and the importer repays the lending institution the principal amount plus interest.

Import finance makes up the credit options which allow international traders to get rid of their cash flow issues. Essentially it helps import traders to bring goods into the country and also helps to fund their business goals. Based on regional context, it can also be called trade, inventory or stock finance.

What are the two negatives associated with a letter of credit? -The importer has to pay the bank's fee for the letter of credit. -It could limit the importer's ability to borrow since it is a liability.

The agreement sets out the terms and conditions of the agreement. It's often simply called a loan, credit facility agreement, or facility letter. A facility agreement is a short-term loan for a specific amount that does not require collateral. Instead, the borrower pays interest and repays the loan over time.

What are the three types of letters of credit? ›

Types of letters of credit include commercial letters of credit, standby letters of credit, and revocable letters of credit. Other types of letters of credit are irrevocable letters of credit, revolving letters of credit, and red clause letters of credit.

Loans and credits are different finance mechanisms.

While a loan provides all the money requested in one go at the time it is issued, in the case of a credit, the bank provides the customer with an amount of money, which can be used as required, using the entire amount borrowed, part of it or none at all.

A credit instrument is a piece of paper that shows someone owes money to someone else. It can be a note, a bond, a loan, a check, or an invoice. People, companies, and governments use credit instruments to keep track of who owes them money and how much they owe.

A letter of credit is an instrument issued by a financial institution, usually a bank, which authorizes the bearer to demand payment from the institution. A letter of credit can be general, if it is not addressed to any specific person, or special, if it is addressed to a specific person or entity.

'Letters of Credit' also known as 'Documentary Credits' is the most commonly accepted instrument of settling international trade payments.

What is an Import Letter of Credit? It is a method of payment commonly used in international trade transactions, whereby the issuing bank promises to pay the exporter – provided the exporter complies with the terms and conditions of the letter of credit.

: a credit which is opened by an importer with a bank in his own country and upon which the exporter he deals with may draw bills of exchange compare export credit.

Opening the LC: Once the agreement is reached, you, as the importer, will approach your bank (the issuing bank) to open an LC in favor of the exporter (the beneficiary). You will provide the necessary information, such as the amount, expiry date, shipping documents required, and any specific terms and conditions.