What Is An At Sight Letter Of Credit And How Do You Use It In Foreign Trade? An At Sight Letter of Credit is a letter of credit (LC) that is payable once the exporter/seller meets all of the requirements of the letter of credit.
This type of LC provides the fastest mode of payment to the exporter/seller, when selling to their overseas importers/buyers.
Letters of Credit
Letters of credit is one of the most important means of financing in international trade, as the letter of credit is a tool that removes most of the risks as from the buyer (importer) and from the seller (exporter). All letters of credit, including at sight letters of credit, are reliant on certain documents.
In order to be paid, the beneficiary (seller/exporter) must submit all the required documents to the bank.
The required documents usually include the letter of credit itself and all other documents that show that the seller/exporter has met his obligations in the deal.
Letters of credit are instruments used to guarantee payment, and are separate from a purchase or sales agreement.
LCs are utilized to ensure that each side of the deal delivers on their obligations in the deal.
The issuing bank of the letter of credit guarantees payment and blocks the money for the deal until they receive confirmation that certain requirements are met.
To set up a documentary letter of credit or at sight letter of credit, the paying party applys for a letter of credit at a bank or through a trade finance organization.
Exporters / Sellers
If you are an exporter / seller and am selling something internationally, you can be assured of payment by using a letter of credit.
With a properly issued letter of credit, you will be paid as long as you meet the terms and conditions stated in the letter of credit.
Payment is most often guaranteed by a reputable bank, therefore you’re not relying on the underlying credit capability or willing to pay of a buyer that you may or may not familiar with.
Importers / Buyers
If you are a importer/buyer, a letter of credit can keep you from losing money in the case that the agreed upon shipment never arrives.
Instead of paying for the goods or services upfront, a letter of credit blocks the funds needed in a bank until the exporter/seller can provide the required documents that prove that a shipment to you has taken place.
Even though a letter of credit can greatly decrease your risk exposure in a deal, it will not completely eliminate all risk.
The exporter/seller could ship goods that aren’t as you agreed upon in the purchase order or they could even commit fraud a ship you nothing at all.
The bank blocks the funds only against the required documents, and will not ensure that the order is fulfilled as agreed upon in the purchase agreement.
One option to further protect yourself is to add a required inspection certificate to the letter of credit, which gives you the opportunity to inspect the content of the shipment before payment is released.
How Long Does It Take To Receive Payment?
Even though receiving payment through is fairly quick, that doesn’t mean that it is instant.
The exporter’s/seller’s bank will first review all of the submitted documents to confirm that they meet all of the requirements of the letter of credit.
This can take a few business days.
Sometimes, the required documents get forwarded to a second bank for review before being sent to the issuing bank and payment is made.
Once all required documents have been received by the issuing bank, the funds can be released.
When dealing in international wire transfers, it usually will take a day or two for the funds to arrive in the beneficiary’s account.
In general, plan on 5 business days for every bank that is reviewing the required documents and and another one to two business days for the funds to be transferred.
How An At Sight Letter Of Credit Doesn’t Work
A deferred payment letter of credit is not an at sight letter of credit.
This type of LC is called an usual example letter of credit, and it states that payment is to be paid at some future point in time.
With an usance LC payment is made long after the required documents are presented.
This could be 30, 60, 90 or 180 days after the documents are presented.
Deferring the payment allows the importer/buyer more time to come up with the funds to close the deal.
You could even say that a differed LC is a type of seller financing, allowing the buyer or the goods to turn around and resell the goods to a second buyer without paying any upfront costs out of their own pocket.
Other Variations Within Letters of Credit
All letters of credit have a multitude of various features within them.
For example, if a letter of credit becomes irrevocable, they become much more difficult to cancel unilaterally.
Confirming a letter of credit is called a confirmed letter of credit, and will add further security as the bank must be a trusted bank.
Letter of credit in most cases is as follows:
Letter Of Credit process
- Exporter and importer agree to the release of LC (Letter of credit).
- Importer (the buyer) with the consent of the exporter (seller) asks his bank to issue a letter of credit. The importer’s bank (the issuing bank) in such case assumes an obligation to pay a fixed amount to the exporter with the condition that the exporter will provide the documents that match the letter of credit for a specified period of time.
- Bank issuing informs the bank of the exporter of the credit.
- Bank of the exporter (advising bank informs the exporter that, the letter of credit is issued on his advantage).
- Exporter ships the goods, prepares the necessary documents and send them to the bank for providing in the designated bank.
- Designated bank verifies the documents and if the documents are in compliance with the terms and conditions of letter of credit, this bank will pay the amount of the documents, but not exceeding the total amount of the letter of credit.
- Designated bank sends the documents to the importer’s bank for onward transmission to the importer, who can use them to get the goods.
General advantages of the letter of credit
1. Letter of credit is very flexible computational tool that can be used for payment transactions on a variety deals of clients.
2. Letter of credit is a tool, the rules of using of which are defined in the authoritative international organization, are common and are recognized all around the world. This is beneficial to both customers and banks, as each party of the transaction has a clear understanding of rights, responsibilities, and standard requirements to all participants in the operation.
3. Letter of credit is useful as a tool for short-term financing.
Advantages of the letter of credit for importers
1.Letter of credit may open by own expense of the client, by funds provided by the bank on credit, as well as by providing support by customer to fulfill its obligations (mortgage, deposit).
2.Payment is performed after shipment of goods and delivery of documents.
3.Importer determines a list of the documents against which will be issued payment.
4.Limit the period of providing of the documents and shipment of goods.
Advantages of the letter of credit for exporters
1. To the obligation of the buyer to pay, it is added an obligation of the issuing bank, this liability does not depend on the relationship between the seller and the buyer.
2. If the letter of credit is confirmed, so there is a guarantee of payment from the second bank.
3. Performance of the letter of credit is a guarantee of payment.
The similarities between the letters of credit and bank guarantees
1.Letter of credit and guarantee are due to the existence and the need to secure the obligations of partners in a transaction.
2.Letter of credit and guarantee are the bank’s obligation to make payment to the beneficiary against certain documents;
3.Letter of credit and guarantee are paid during the provision to the bank well-defined and clearly understood terms of those instruments of documents.
4.Commercial banks offer guarantees and letters of credit on the base of written confirmation of the presence of obligations in the applicant that are provided by such guarantees or letters of credit (the contract, etc.).
- Letter of credit is opened with the intention of using it, that is, payment by letter of credit is a phenomenon that occurs during the normal course of events (method of payment). Guarantee is used as a way to ensure obligations and is used if in the process of the implementation of one of the parties of the transaction is not able to meet its own obligations.
- Letter of credit is used as a method of payment in one form or another. The guarantee can cover almost any kind of obligations (the advance payment guarantee, performance of contractual obligations, tender obligations, repayment, payment of customs duty, payment of a fine or compensation fixed by the court, the observance of the guarantee period of equipment, guarantee of the payment of court collateral, guarantee of payment of the transfer a football player and many others.) Area of application of guarantee, thus much wider than in credit.
- Letter of credit is a transferable tool, as it allows to optimize the calculations between the partners. Guarantee in rare cases can be transferable as all that is required to receive funding under the guarantee is the requirement of payment, which makes it a ground for abuse of this tool.
How To Obtain At Sight Letters Of Credit. Kingrise Finance Limited issues Real Letters Of Credit (L/C, DLC, SBLC), Bank Guarantees and completes Real BG/SBLC Funding without long stories!
Letters Of Credit (L/C, DLC, SBLC) are financial instruments issued by banks and other financial institutions such as Kingrise Finance Limited. These financial instruments are used to secure contracts, the are also used for trade financing, foreign exchange transactions as well as in import and export transactions.
Kingrise Finance Limited was incorporated in Hong Kong on 22-SEP-1999 as a Government Licensed Money Lender with CR No.: 0689078. We are leading providers of Business Loan, SME Loans, Project Financing, Recourse Loan, Non Recourse Loans and Bank Financial Instruments such as Standby Letter of Credit Funding, Bank Guarantee, Performance Guarantee Bond, Tender Bond Guarantee, Advance Payment Guarantee, Bank Comfort Letter, BG/CD/BD/BCL/DLC/LOC/SLOC/SBLC etc.
Our bank instruments, bg and sblc/sloc are issued from prime banks such as Barclays Bank London, Standard Chattered Bank, HSBC Hong Kong or any rated AAA bank of your choice. All our financial instruments are Cash-Backed and can be used as collateral to secure funding for projects, Discounting, Monetization and Private Placement Programs (PPP)..
So Why Should You Use An At Sight Letter Of Credit?
An At Sight Letter of Credit is highly beneficial for the exporter/seller and the importer/exporter as payment will be paid to the seller before the buyer receives the goods, and the seller must ship the goods to the buyer before receiving payment.
It’s a win-win situation for both parties.
This is why most all importers and exporters of goods internationally prefer to use At Sight Letters of Credit.
So if you need At Sight Letter Of Credit For Your Trade Finance Transactions kindly contact us immediately for assistance: