A vital consideration in any trade transaction for buyers and sellers is the securing of shipments of goods, and their subsequent settlement. Those who supply goods or provide services are entitled to payment, and those who make payment are entitled to the goods or services for which they have contracted.
Letters of credit remain one of the most versatile and widely used payment mechanisms in international trade. Whether you import or export, settlement by means of a letter of credit can provide a high level of security. Nevertheless many corporate customers may consider Letters of Credit administratively cumbersome, and difficult to procure.
Overcoming these perceived obstacles requires professional guidance and technical assistance.
Why opt for letters of credit?
When using other payment methods (advance payments, open account trading and bills for collection) the exporter and the importer depend on each other for proper performance in order to ensure a trouble-free exchange of goods for payment. When using letters of credit however, both parties have the additional independent assurance of the Bank that issues the credit.
When issuing a letter of credit an issuing bank undertakes to pay the exporter provided that:
• the documents stipulated in the credit are in order, and
• the terms and conditions of the credit are complied with
Bank of Valletta has always been engaged in international trade and is very well equipped to provide a wide and comprehensive range of products and services based on the letter of credit.
Our Trade Finance Centre, established in 1993, has a group of highly trained and experienced trade finance specialists who are always ready and willing to assist any importer, exporter or trader with tailor-made solutions to secure their international deals. We also extend our services to customers holding a working relationship with one of the Bank’s branches, Business Centres or Corporate Centre.
Our Trade Finance Centre offers the following ancilliary services related to international trade:
• Assistance with interpretation of ICC publications;
• Assistance with interpretation of Incoterms
• Support on trade missions.
• Advice and assistance in drawing up sales contracts
In addition, we provide services specifically aimed at facilitating the trader’s business requirements.
Services offered to the Exporting Party
• Advising and confirming commercial letters of credit;
• Standby letters of credit;
• Pre shipment finance by means of overdraft, loan and documentary credit facilities
• Negotiation of documents
• Discounting of receivables;
• Expert advice on credit conditions
• assistance in document preparation.
Services offered to the Importing Party
• Issuance of all types of letters of credit;
• Import finance facilities such as loans and overdrafts;
• Advice and consultancy services;
• Advice and assistance in drawing purchase contracts.
Services offered to the Trader
• Standard Letters of Credit;
• Back to Back letters of credit;
• Transferable letters of credit;
• Letters of assignment.
The Stages of a letter of credit transaction are outlined below:
• A buyer contracts the purchase of goods from the seller and agrees to pay by a letter of credit.
• The buyers calls on his banker to issue the letter of credit
• If the banker agrees, it issues the Letter of Credit in favour of the seller through one of its many international corresponding banks.
• The Letter of Credit is advised by the corresponding bank to the seller
• If requested by the issuing bank the advising bank may add its confirmation to the credit.
• The seller ships the goods and executes its obligations under the sales contract
• The seller prepares the documents called for by the letter of credit and presents them to the advising/confirming bank nominated in the credit.
• The confirming bank examines the documents and, if found to be compliant, submits them to the issuing bank for settlement. If it has confirmed the credit it is obliged to pay the seller as detailed in the letter of credit.
• Once received by the issuing bank, the documents are once again checked and, if found in order, the issuing bank pays the advising/confirming bank.
• The issuing bank releases the documents to the buyer and debits the buyer’s bank account.
• The buyer can now take possession of the goods by means of the shipping documents.
Letters of Credit spell benefits to both the exporter and the importer. Here, we have listed the salient ones.
• Payment is guaranteed by one or more banks if the terms and conditions of the credit are complied with;
• You will be in a position to extend more favourable terms to the importer if payment is guaranteed and effected by means of a letter of credit;
• It is possible to have the letter of credit confirmed by your banker, thus substantially curtailing buyer, bank and sovereign risk on a transaction;
• A letter of credit is also a finance instrument and the receivables are commonly discounted to you at very good rates;
• The letter of credit is universally known and accepted even in legal circles
• There are many types of letters of credit which you can make use of;
• We offer you all the assistance and advice you may need. You can rely on our experience even in other fields such as shipping and insurance.
• When accepting to settle by means of a letter of credit, you are providing the exporter with all the assurance that you have sound financial means since banks usually request some form of security in order to issue a letter of credit;
• Since the letter of credit provides payment assurance from both your bank and the exporter’s, you may negotiate better terms such as discounts and extended credit periods;
• You can exercise better control when using letters of credit such as control shipment dates and specific documents, most valid when the nature of the goods is seasonable or perishable;
• You can also improve cash flow management when using letters of credit since no interest is incurred on contingent facilities until payment is effected under the letter of credit;
• You can rely on the expertise of our dedicated team at Trade Finance Centre to check that all documents requested comply with the credit terms;
• Payments under letter of credit are only effected against the presentation of reliable evidence that the goods have been shipped. It is pertinent to note, however, that banks deal only in documents and not in goods.
Terms, conditions and exclusions may apply. These are discussed with customers on a case by case basis.
Do you want to learn more about Letters of Credit from Bank of Valletta? Then speak to us today:
•call our Customer Service Centre on 00356 2131 2020, or
•send us an e-mail at [email protected], or
•click on the ‘Get in Touch’icon at the top (right hand corner) and submit your query and contact details. We’ll contact you as soon as possible, or
•contact our Trade Finance Centre on 00356 2275 5288, or
•contact any BOV Branch for additional information.