Bank Instruments

This is a commitment in form of writing issued by a bank to pay a particular sum of money to a beneficiary on behalf of a bank’s customer in a situation where the customer/purchaser does not have the ability to pay or perform its obligation financially to the seller.

For the fact that a bank’s client can use a bank instrument in a transaction is a show that the individual has proof of strong credibility financially and also capable of repaying.

However, it is important to know that though the bank is in charge of the paperwork of the bank instrument, it does not have any say in the development of the contract or even in the commitment to it. It’s only the bank instrument and the terms and policies associated with it, that is of interest to the bank. Therefore, bank instrument will be reimbursed for since the bank has to compile with the term and conditions stated.

A Letter of Credit (L/C) is one of the oldest and most standard forms of payment for transactions in international trade. Foreign exporters that deal with unfamiliar companies thousands of miles away are naturally uncomfortable investing money to produce goods and ship them without any assurance of payment. Without a Letter of Credit (L/C), exporters generally ask for substantial deposits or other payment guarantees. Letter of Credit (L/C) allow buyers to avoid these undesirable alternatives.

A Standby Letter of Credit (SBLC/SLOC) is a legal document that guarantees a bank’s commitment of payment to a seller in the event that the buyer–or the bank’s client–defaults on the agreement. A Standby Letter of Credit (SBLC/SLOC) helps facilitate international trade between companies that don’t know each other and have different laws and regulations. Although the buyer is certain to receive the goods and the seller certain to receive payment, a Standby Letter of Credit (SBLC/SLOC) doesn’t guarantee the buyer will be happy with the goods.

A Trust Receipt (T/R) is a financial document attended to by a bank and a business that has received delivery of goods but cannot pay for the purchase until after the inventory is sold. The Trust Receipt (T/R) serves as a promissory note to the bank that the loan amount will be repaid upon sale of the goods.

Packing Credit (P/C) is nothing but pre-shipment finance given to exporters with a low-interest rate to boost exports. Packing Credit (P/C) is given by an authorized bank by the instruction of Reserve Bank as a government policy to promote exporters to earn foreign currency to strengthen the financial status of a country.

Sellers/Exporters and Buyer/Importers usually require an intermediary such as a bank or financial institution to guarantee payment as well as the delivery of goods.

This is where the Documentary Letter of Credit (DLC) comes in.

A Documentary Letter of Credit (DLC) or At Sight Letter of Credit (Sight LC) is a financial instrument, issued by banks or trade finance institutions through a SWIFT MT700 message, where seller/exporters receive payment from the buyer/importer, once the terms specified in the DLC are completely fulfilled.

A bill of lading (BL or BoL) is a legal document issued by a carrier to a shipper that details the type, quantity and destination of the goods being carried. A bill of lading also serves as a shipment receipt when the carrier delivers the goods at a predetermined destination. This document must accompany the shipped products, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper and receiver.

The domestic L/C refers to a kind of settlement method with which the L/C-opening bank, at the request of the customer, issues the written payment commitment to the seller and pay to the seller upon receipt of documents that comply with domestic provisions on L/C in domestic trade.

The domestic L/C uses the proven and complete practices of the international L/C and helps you to turn the commercial credit into the bank credit to handle the domestic trading with ease. Meanwhile, it reduces fund occupation for both the buyer and the seller and is an easy and convenient settlement method

Back-to-back letters of credit consist of two letters of credit (LoCs) used together to finance a transaction. A back-to-back letter of credit is usually used in a transaction involving an intermediary between the buyer and seller, such as a broker, or when a seller must purchase the goods it will sell from a supplier as part of the sale to his buyer.

For businesses that export or import, letters of credit are the financial security of international trade. A letter of credit allows an importer to make sure that an order is filled and shipped before payment is made and the exporter is guaranteed that money will paid for the goods shipped overseas. The discounting of letters of credit allows exporters to get their money faster.

Irrevocable letter of credit (ILOC) is a type of documentary credit which can not be cancelled or amended by the issuing bank without the agreement of the parties of the letter of the credit transaction.

The letter of credit world is full of misunderstandings, improper industry practices including irregular banking practices, false information and so on.

A transferable letter of credit is a type of financial guarantee, known as a letter of credit, that additionally allows the first beneficiary to transfer some or all of the credit to another party, which creates a secondary beneficiary. The party that initially accepts the transferable letter of credit from the bank is referred to as the first, or primary beneficiary.

A transferable letter of credit is often used in business deals to ensure payment to the supplier or manufacturer. A transferable letter of credit is an alternative option to advance payments.

Import Letters of Credit are the most common import financing methods, offering protection to importers and exporters in cross-border transactions. They offer numerous benefits, primarily a guarantee of payment to the exporter, who then no longer bears payment default risk, which positions importers to negotiate favorable deal terms.

A usance LC is used for the same reason that credit terms are provided. It allows the purchaser flexibility, increased working capital and the availability to sell through stock prior to payment. Paying for the goods is easier at a later date when compared to payment upon receipt; as there will usually have already been an element of payment collection at this point, from the ultimate purchaser.

A terms of payment arrangement in which an exporter entrusts the ownership documents of an asset to his/her bank, which then presents them to an importer only after the bank has received payment for the asset. Essentially, the bank holds hostage the ownership documents, which the importer needs to take possession of the merchandise, until the bank, and, by extension, the exporter, are paid. A risk for the exporter is the possibility that the importer will refuse to pay, and, while he/she will not be able to take possession of the merchandise, the exporter has little legal recourse. The terms of this agreement are set between the importer and exporter at the time of the sale.

Telegraphic Transfer (T/T) is a direct payment for goods by wire transfer. Buyer and Seller have to agree whether payment will be made before or after delivery. Or maybe pay some first When the buyer receives the product, the rest will be paid. The seller sends documents (tickets) to the buyer. In this case, the buyer and the seller must be a long business partner. Because trust is the basis for guaranteeing low costs but with high risks.

SWIFT (The Society of Worldwide Interbank Financial Telecommunication) is a messaging system that runs on a network of financial institutions globally. It is used by thousands of banks worldwide to communicate information on financial transactions in a secure and standardized way.

“Maximize liquidity. Turn papers into capital.”

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