A letter of credit is an irreversible commitment on the part of the issuing bank to pay the beneficiary (the party delivering the goods) upon submission by that party of the documents required under the letter of credit on time and upon fulfilment of any other applicable terms. Letters of credit are only used in international trade, including deals involving high monetary values between suppliers (exporters) in one country (state) and buyers (importers) in another country (another state), and in cases where the business is in its initial phases and the parties involved need to confirm the quality of the business in order to establish a sustainable relationship.
The supplier from which you ordered goods must meet all conditions specified on the letter of credit prior to receiving payment. On this letter of credit, you and your partner can specify details such as:
- Latest date on which goods can be transported
- Quantity of goods
- Quality and other details of the merchandise
Types of letters of credit offered include:
- Unconfirmed letter of credit: a letter of credit is unconfirmed if the promise to pay the beneficiary comes only from the issuing bank.
- Confirmed letter of credit: a letter of credit is confirmed when another bank (preferably in the country of the beneficiary), whereby the issuing bank has an account, or a correspondent bank, a bank of the first level, increases its commitment to pay the letter of credit upon a request from the issuing bank.
Potential uses (financing):
- Transferable letter of credit: This type of financial guarantee allows the first beneficiary to transfer some or all credit to another beneficiary at the same elements, except for the amount, the last date of dispatch, and the expiry date.
- Untransferable letter of credit: The beneficiary indicated in this type of letter of credit is the only one entitled to receive these funds. This expected income can neither be transferred to another beneficiary, nor be sold at a discount.
- Back-to-back letter of credit: This is a letter of credit issued based on a previously issued one. The principal letter of credit serves as the means of guarantee, but not as payment means. The second one is issued by an exporter in favour of an importer.
According to their payment terms, letters of credit are grouped into two categories:
- Letter of credit at sight: This type is payable upon presentation of the documents required by the beneficiary. In any case, the bank has the obligation to check the validity of documents before becoming liable for the payment.
- Letter of credit at usance (term): This form is payable at a later date upon the dispatch of goods and presentation of the requisite documents to the bank. Delayed payment terms are indicated in the business contract between the parties, e.g. 30, 60 or 90 days from the date of dispatch.
Is ProCredit bank rated by international specialised companies?
ProCredit Bank has received a B+ rating from Fitch Ratings as B+. You may submit proof of this rating to your partners in Albania and abroad. For more information, click here.
