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Letter of credit

Letter of credit

A settlement method both parties to a contract can benefit from

  • It takes care that the terms of the contract are fulfilled
  • The seller may credit the buyer
  • Payments are made according to international rules

A letter of credit (L/C) is a bank document issued at the request of the buyer by which the bank undertakes to pay for goods and/or services provided according to the documents supplied by the seller that meet the terms and conditions of the L/C.

Benefits for the buyer

  • When buyers pay with a L/C, they confirm their solvency. This is very important when you make new contracts.
  • Goods dispatch dates can be planned.
  • You need to pay for goods only when the seller has fulfilled the conditions of the L/C, i.e. has provided documents confirming dispatch of goods.
  • The seller may credit the buyer: if the L/C is paid by postponing maturity, the seller can first sell the goods received and pay for them at defined maturity.

Benefits for the seller

  • By a L/C a third party, i.e. the bank, ensures that accounts will be settled for dispatched goods if the conditions of the L/C are fulfilled.
  • The seller knows when payment will be made for the goods dispatched or services provided.
  • According to the documents of the L/C, the bank can pay the buyer for exported goods prematurely.

Risk

  • The recipient of the L/C is not protected from exposure to insolvency risk of the bank which had issued the L/C or to the risk of the home country of such bank in connection with state policy, applicable law, etc.
  • A L/C is a documentary settlement method. When this settlement method is used, only the documents listed in the L/C and provided by the seller (not the goods) are checked, so there exists a certain degree of risk that the information provided in the documents will not match reality, for instance, the delivered goods will be damaged or will not meet the quality standards.
  • A L/C does not protect from the risk of falsification of documents.

Export L/Cs Charges
Advising of L/C EUR 45
Advising of amendment to L/C EUR 30
Confirmation of L/C (deferred-payment L/C confirmation period extended until maturity date) As agreed, min EUR 100
Transfer of L/C 0.2 per cent of the transferred amount,
min EUR 100
Pre-checking of documents (per each set of documents) EUR 50

Handling / checking and / or payment against documents (per each set of documents)

0.2 per cent of document value, 
min EUR 100

Reimbursement claim

EUR 20

Advising of L/C beneficiary’s assignment of proceeds

EUR 45

Maturity control in case of a deferred payment

EUR 30

Transfer of receivables to another beneficiary

EUR 25
Import L/Cs Charges
Issue of L/C with cash collateral EUR 90 and 30 EUR, if paper application is submitted
Issue of L/C without cash collateral Interest as agreed plus
EUR 90 and 30 EUR, if paper application is submitted
Amendment to L/C  EUR 45 and 30 EUR, if paper application is submitted
Document checking and / or payment against documents (per each set of documents) 0.2 per cent of document value,
min EUR 100
Cancellation of L/C EUR 30
Maturity control in case of a deferred payment EUR 30
Endorsement of a bill of lading EUR 30
Other services Charges
Conditional payment (if funds received from any other bank) 0.15 per cent, min EUR 90
Preparation of request or information related to L/C at the customer's request EUR 25
Drafting of L/C or deal structure As agreed, min EUR 45
Dispatch of documents abroad by courier EUR 55
Dispatch of documents in Lithuania by courier EUR 20

 


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