Letters of credit

A documentary letter of credit

is an obligation of the bank that issues an LC (Letter of Credit) to pay the LC amount to the seller of the goods if he submits to the issuing bank the documents listed in the LC in compliance with the terms and conditions of the LC.

  • It helps to reduce risks.
  • It helps to avoid payment in advance.
  • It allows the user to obtain financing.
  • It allows the user to do business in riskier regions.
  • International rules are observed in the transaction.

Types of letters of credit

  • Confirmed letters of credit

  • Transferable letters of credit

  • Standby letters of credit

Advantages and opportunities

  • To the Buyer

  • To the Seller

Course of the letter of credit

  1. Buyer and the seller agree that letter of credit will be used for payment;
  2. Buyer contacts his bank and requests to open documentary credit in seller’s favor;
  3. Buyer’s bank advices letter of credit to the seller’s bank, who notifies the seller about issued letter of credit;
  4. Seller ships the goods and submits to it’s bank the documents required by letter of credit;
  5. Seller’s bank sends the documents to buyer’s bank. Buyer’s bank checks the compliance of the documents against letter of credit terms, effects payment under letter of credit and hands the documents over to the buyer. In case documents do not comply with letter of credit terms, payment under letter of credit is effected only after receipt of the buyer’s approval for payment.

Documents

Conditions

  • Main conditions for issuing letters of credit

  • Documentary credits fees

  • Frequently asked questions

Inquire about bank guarantee

When replying to queries submitted in this form, we will be able to provide only general information about bank guarantees. If you have any questions related to financial information of your company, please login to the internet bank or contact us by phone 1633. If calling from abroad, please call +370 5 268 4422.

We will reply to your questions from 8 a.m. to 6 p.m. on business days. If you need urgent information, please call us by phone 1633. If calling from abroad, please call +370 5 268 4422.

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Information regarding potential risks

Payment under letter of credit is effected upon presentation of documents asked for by letter of credit to the bank and does not have any connection with underlying goods, therefore (i) pay attention when setting up letter of credit terms, and (ii) there is always a risk that seller could ship goods of different kind or quantity. Letter of credit is not bound by the underlying contract, therefore in case there are any changes in contract, respective changes in the letter of credit terms are to be made as well.