A Documentary Credit, also commonly called a Letter of Credit, is a commitment by a bank (the "Issuing Bank") to pay the seller or exporter ("Beneficiary") a certain amount for goods or services, provided the Beneficiary conforms with the specified terms and conditions contained in the Credit.
This innovative messaging system allows you to keep in touch with your account balances and transactions, helping you manage your money and prevent fraud on your account.More
FNB Online Banking offers you Internet-based, electronic banking that's easy to use, quick, secure and available 24/7.More
Cellphone Banking enables you to conveniently perform a number of banking transactions via your cellphone.More
Have your statements sent to you via email, saving you paperwork and contributing to a greener environment.More
If you are exporting:
If you are importing:
This can be amended or cancelled at any time by the importer without the consent of the exporter. This option is not often used, as there is little protection for the exporter. By default all credits are irrevocable, unless otherwise stated.
Once issued this can only be changed or cancelled with the consent of all the parties. The seller must merely comply with the terms and conditions of the credit in order to receive payment.
In some instances, exporters may request a credit to be confirmed by another bank, (usually a bank in their own country). If a bank adds its confirmation to a credit, it means that it is obliged to pay if the terms and conditions of the credit are complied with. This obligation to pay exists even if the issuing bank or country defaults.
This is available for payment at the tellers of the paying bank, as nominated in the credit. The seller can, therefore, present documents to the paying bank and does not have to wait for the documents to be forwarded to the issuing bank for checking and subsequent payment.
This is always payable at the counters of the issuing bank. Buyers can use negotiation credits to delay payment until the documents have been received and checked by the issuing bank.
Similar to payment credits, except that they are payable at a future date.
The accepting bank guarantees payment to the holder of the bill of exchange on maturity date - regardless of whether the credit is confirmed or not. This option comes with an acceptance fee which can be substantial.
The original letter of credit is used as security to open another credit in favour of the exporter's own supplier. The bank confirming the original credit may not necessarily be the issuing bank of the second credit.
This is normally used when the exporter is not supplying the goods and wishes to transfer all or part of the responsibilities under the credit to the supplier(s).
This enables the exporter to obtain advance payment before shipment. This is provided against the exporter's certificate confirming its undertaking to ship the goods and to present the documents in compliance with the terms and conditions of the documentary credit.
Similar to a Red Clause Credit, but in addition to pre-shipment finance the exporter also receives storage facilities at the port of shipment at the expense of the buyer.
This offers pre-shipment finance to the seller against warehouse receipts, forwarding agent's receipts or similar documents that prove the goods are no longer in the seller's possession.
Similar to a normal letter of credit, this method differs in that it is a default instrument, whereas a normal credit is a payment instrument. A standby credit is only called upon in the event of failure to perform. Its function is, therefore, that of a guarantee.
This allows for the credit to be automatically reinstated under certain circumstances. It is normally used where shipments of the same goods are made to the same importer.
If you are concerned that the importer may not pay, or you are not comfortable with the country risk in the country of the importer, then you should insist on payment via a documentary credit - also called a letter of credit.
Once your bank adds their confirmation to the credit, the various risks are covered - provided you produce the necessary documents and they conform to the credit terms, you will receive payment, even if the importer's bank and/or country are unable to pay.
You need to state in your sales contract that payment is to be effected via a documentary credit. If you have requested payment via documentary credit, you should not proceed with the manufacture and/or shipping of your goods until you have received the documentary credit and checked it carefully to ensure that it is issued in terms of your requirements.
If this is the case, you will need to request the buyer to arrange for an amendment to the documentary credit.
It is hard to imagine dealing with collections without the security of international uniformity. The International Chamber of Commerce (ICC) is an international body that has defined worldwide standards for the operation of documentary collections.
These standards are embodied in the 'Uniform Rules for Collections', commonly referred to as the URC 522. The URC 522 is not a force of law, but a set of rules and regulations that are binding on the parties who subscribe to it.
Checklist for buyers applying for a documentary credit
Checklist for sellers on receipt of a documentary of credit
Call us on 264 61 299 2222.
Documentary Credits are governed by the Uniform Customs and Practice for Documentary Credits.
Call us on 264 61 299 2222.