Export Letters of Credit
Ensure prompt, complete payments, manage foreign buyer credit risk and enhance business opportunities by selling to buyers you might otherwise avoid.
An Export Letter of Credit is a written document that replaces the credit of your buyer with the credit of their bank. It provides the payment mechanism covering the shipment of goods between you and the buyer, in accordance with certain terms and conditions. It also assures the buyer that you will comply with the documentary requirements in order for you to receive payment.
This diagram and description outline a letter of credit, assuming that you are the seller.
- You negotiate the sale of goods as well as payment terms with a foreign company.
- The buyer applies for a merchandise letter of credit from their bank, whereby the bank agrees to pay against documents conforming to the terms and conditions of the credit, independent of the buyer’s ability or willingness to pay. As beneficiary you want to ensure that the letter of credit is acceptable, so you can provide our form, Instructions for the Buyer in Opening a Letter of Credit to your customer.
- The buyer’s bank issues a letter of credit to National Penn Bank.
- National Penn Bank can either act as the advising bank or the confirming bank. We become a confirming bank when the obligation is accepted as our own. We then authenticate the transmission and notify you that a letter of credit has been received in your favor.
- You examine the letter of credit and, if acceptable, ship the goods to the buyer in accordance with the shipping terms specified in the contract. The shipping terms dictate where you must deliver the goods and who has responsibility for the cost and risk. This is done using one of the 13 INCOTERMS that were developed by the International Chamber of Commerce.
- The documents are presented to National Penn Bank. Typically documents may include the following:
- Bill of Lading / transport document
- Commercial Invoices
- Certificate of Origin
- Insurance policies or certificates
- Optional documents, which may include packing lists, certificates of inspection, etc.
- National Penn Bank examines the documents to ensure that they conform to the letter of credit. The documents are forwarded to the issuing bank and payment is requested.
- The issuing bank reviews the documents to ensure that the terms and conditions have been met. The applicant is advised of their receipt and payment is requested.8a. Simultaneously, the issuing bank remits the payment to National Penn Bank and transfers the title documents to the buyer upon receipt of the payment.
8a. Simultaneously, the issuing bank remits the payment to National Penn Bank and transfers the title documents to the buyer upon receipt of the payment.
8b. National Penn Bank remits the payment to you.
- The buyer uses the title documents to take possession of the goods at the agreed upon port. Letter of credit amendments can also be provided if both parties agree. This allows your transaction to have the necessary flexibility. Simply agree on any changes with your customer and have them contact their bank to prepare the amendment.
Please note that letters of credit are governed by the most recent version of the International Chamber of Commerce (ICC) publication "The Uniform Customs and Practice for Documentary Credits." In addition, you must comply with Article 5 of the Uniform Commercial Code which is a statutory law. Together these guidelines represent a comprehensive set of rules governing letters of credit.
Transferable Letters of Credit
Need third party credit? A Transferable Letter of Credit enables the exporter or you as the beneficiary to give instructions to us as the paying bank to make some or all of the credit available to a third party. It is typically used by brokers and middlemen, rather than the ultimate suppliers.
Note the diagrams below. The first outlines the issuance and transfer of a letter of credit. The second represents the shipment of goods, negotiation of documents and movement of funds in a transferable letter of credit. Both diagrams are assuming that you are the middleman.
Still unsure? Give us a call. We’d be happy to explain further.
Want to offer payment terms to your buyers to penetrate new foreign markets and still get paid quickly? A Bankers’ Acceptance may be your answer. This time draft, or future payment, is drawn on and accepted by a bank, making it the accepting bank’s obligation to pay you, or the holder of the draft at maturity.
- you have a reliable funding source, even during tight financial periods with limited direct lending.
- you’ll usually enjoy attractive financing rates since you are leveraging the creditworthiness of the Issuing Bank.
- exposure to political risk or exchange controls imposed by the buyer’s government may be reduced.
Our experienced International Trade advisors can customize the Bankers’ Acceptance to cover the entire period needed to ship and dispose of the goods financed, helping you break new ground.
Export Documentary Collections
Facilitate prompt and trouble-free payments from your foreign customers with an option that costs less than a Letter of Credit.
When a buyer’s creditworthiness is acceptable, an Export Documentary Collection may be the ideal tool to provide for orderly passage of title against payment. It usually consists of a sight or time draft drawn on an importer, accompanied by other documents and instructions. To ensure proper payment, the buyer does not receive the title and shipping documents until the goods are paid for (sight draft) or the buyer agrees to pay for them at a later date (time draft).
Collecting payments can be intricate and time-consuming, which means delayed payments to your company. An Export Documentary Collection greatly accelerates the process. Let us help you get started.
Standby Letters of Credit
Gain peace of mind knowing you’ll get paid even if your customer doesn’t compensate you directly. A Standby Letter of Credit can ensure that you, as the beneficiary, will be protected in the event of default or nonperformance under contract by another entity. It can also be useful when you’re required to post a bid bond, a performance bond, an advance payment bond, or cover a warranty or product acceptance.
When opening the Letter, an advising bank is used in addition to the issuing bank to cover contracts between two parties located in different areas. As an exporter, you may ask the buyer to provide a Standby Letter of Credit so you can draw upon it for any unpaid bills. In most cases it’s not drawn upon, but serves instead as an important safety net.
From international trade consulting, loans and loan guarantees to insurance on foreign receivables, Government Programs are in place to give you the wherewithal to accept new business, grow international sales and compete in a global marketplace.
You just need to know how to connect. And that’s where we can help. From financing for labor and overhead to produce goods to short-term transaction-specific working capital loans, our trusted International Trade advisors have relationships with the Export Import Bank (Ex-Im Bank), the Small Business Administration (SBA) and state and local agencies that can help support your export financing needs. We’ll help identify possible options and funding sources and make sure you connect with the resources you need.