Letters of credit
Letters of credit mitigate the payment and supply risks inherent in international trade, also helping to better manage a company’s cash flows.
- Means of payment
- Flexible instrument, yet strict control
- Financing instrument
- Professional counselling
Letters of credit help to mitigate supply and payment risks related to cross-border trading. In the case of settlements under a letter of credit, the buyer’s bank opens, upon the request of the buyer, an irrevocable letter of credit in favour of the seller and makes a payment to the seller after the latter has presented to the bank documents certifying the delivery of goods, which confirm fulfilment of the terms and conditions of the letter of credit.
An import letter of credit is used for buying goods and an export letter of credit for selling goods. A letter of credit can also be used as a means of funding – this helps companies to release their funds from payment terms of trade deals.
Please fill in an application if you wish to apply for a letter of credit worth up to EUR 250,000. For amounts larger than that, please contact our business and corporate banking officers or the trade finance department.
Types of letters of credit
Import / export letter of credit
Based on the application of the buyer, the bank opens a letter of credit in favour of the seller. With this the Bank guarantees the seller payment if the latter dispatches the goods and forwards the documents concerning the consignment of the goods to the bank. On the basis of the documents the bank checks that all terms and conditions of the letter of credit have been fulfilled. Only after having performed conformity control on the documents, shall the bank make the payment to the seller. Accordingly, a letter of credit is an alternative to advance payment.
If payment terms, as per the terms and conditions of a letter of credit, are used upon payment, you can apply for the financing of the payment terms from your bank.
Standby letter of credit
A standby letter of credit is a letter of guarantee issued in the form of a letter of credit. A standby letter of credit shall not be paid until the buyer has paid the seller for the goods in accordance with the conditions of the agreement. If the buyer fails to fulfil its payment obligation, the seller shall be entitled to present the goods and accompanying documents to the buyer’s bank under the standby letter of credit and demand payment of the outstanding amount on the basis thereof. LHV Pank treats a standby letter of credit as a payment guarantee.
Transferrable letter of credit
A transferrable letter of credit is a means of payment, above all, for the intermediaries of goods, who have no guarantees or money to pay for the mediated goods or to guarantee payment. In this case the buyer’s bank opens the letter of credit in favour of the intermediary, who in turn transfers the letter of credit in favour of the seller through its own bank. The rules of transferrable letters of credit are strictly regulated internationally; accordingly, it is not possible to use this means of payment for all trade deals.
LHV is willing to issue a letter of credit when the applicant of the letter of credit is creditworthy. In order to apply for a letter of credit, the regular loan application procedure needs to be passed, i.e. the required documents presented and collateral contracts concluded.
If you want to apply for a loan in the sum of more than €250,000, please contact us so that we can discuss the options.