Quds Bank A'amal provides various and comprehensive options of banking services meeting all your banking needs including letters of credit and policies, and that have a great role in facilitating international trade as credit facilitates importing and exporting process and increase trust between the importer and exporter.
Letter of Credit Definition
Letter of Credit (LC) is a written pledge issued by a bank (called the exporter) under the purchaser application (the applicant) in favor of the seller (beneficiary). Under this LC, the bank shall pay a specified amount within a certain period whenever the seller submits commodities' documents at the real time according to credit conditions instructions. The bank compliance with payment may be in cash upon reviewing the documents or forward.
Importance of LC
Letter of Credit is used in financing foreign trade. It represents the frame that gains the acceptance of all internal parties in international trade square, keeping the interest of all parties whether the exporters or importers.
- with regard to the exporter, it has the warranty- through LC – that it would obtain commodities' value that he entered into a contract to import, upon submitting documents that conform credit conditions to the bank notifying him of the credit arrival.
- By having LC, with regard to the exporter, it warrants that the exporter will receive the value of commodities contracted to export promptly upon submitting the documents which meet and conform the Letter of Credit’s conditions to the bank who notified him of having received the letter of Credit.
- With regard to the importer, it further warrants that the issuing bank of LC will not pay value of commodities contracted to be imported unless having the documents conformed with opened LC conditions
Parties of LC
Four parties participate in LC:
- Purchaser: is the credit applicant, and credit is in the form of a contract made between him and opening bank and includes all points that importer requires from exporter.
- LC issuing bank: is the bank for which the purchaser submits credit application, as it studies the application. In case of approving the application and accepting the bank conditions on the part of purchaser, the bank opens the credit and send the same either to the beneficiary directly in case of simple credit or to one of its correspondents in the seller's country in case another bank participated in documentary credit process.
- Beneficiary: is the exporter who carries out credit conditions within its validity period. In case his notification of the credit is confirmed by the correspondent bank in his country, notification statement constitutes a new contract between him and correspondent bank. Under this contract, the beneficiary shall receive commodities' price in case he submitted documents according to credit conditions.
- Advising bank: is the bank that advises the beneficiary with letter of credit that he obtained for opening bank in case of confirmed documentary credit as common.
LCs’ Financing Benefits
- Finance rates appropriating your business needs.
- Carrying out procedures easily and quickly.
- Competitive commission price.
- Monthly installments that appropriate cash cycle.