The Ukrainian Professional Bank offers services for providing of letters of credit.
What is letter of credit?
A documentary credit - is a letter of credit, that is used for calculations on cross-frontier operations and no matter how it named (a documentary credit or a letter of credit etc.) is one-sided, double bond of a bank, issuing by order of ordering customer (importer) (credit-issuing bank) emitting bank in behalf on his contractor by contract - beneficiary (exporter), whereby a bank, established a credit (emitting bank) should make a payment to o the beneficiary (immediately or with a postponement) or to accept a bill of exchange of beneficiary provided for submittal of the following documents, covered by letter of credit and provided other conditions of letter of credit. Letters of credit are divided on irrevocable and revocable.
They are performing by payment on presentation, by deferred payment, by acceptance or by diplomatic negotiations. In international practice there are the special letters of credit: transferable, reserved, compensative and revolving.
Form of letter of credit
A letter of credit can be irrevocable and revocable (the last is used extremely rarely), ‘divisible’ or ‘indivisible’ (professional jargon, that means that partial shipping / authorized payments or unauthorized accordingly).
In addition, opening of transferable letter of credit is possible.
Amount of letter of credit
If the letter of credit is opened on a certain part of value of commodity, a corresponding percent is specified from the total amount of commodity repayable on the letter of credit.
During a delivery a commodity it is possible to indicate a sum-tolerance (permissible variation) shown in percentages as usually. Quantity of commodity is determined in mass or by volume units and to prohibition on the partial shipment (“indivisible” letter of credit).
The term of validity is understood as period of time from the date when a letter a credit was opened. During this period a beneficiary has a right to provide a document for payment by a letter of credit. When determining the validity it is necessary to make better decision, as the unjustified shortened term of validity can result in a necessity of making amendments in the terms of letter of credit, that will increase a bank commissions, but on the other hand, unreasonably long term of validity can result in a long delay on payment in case of insolvency of a seller.
The term of validity is recommended to determine as a sum of possible period of shipment and period of document delivery after shipment.
UPB is the emitting bank for the clients of the bank. Clients of other banks also can use the opportunity of document services of UPB directly or through the own bank.
A designated bank is very important because of this bank is authorized to carry out central procedure - verification of documents on correspondence of conditions of letter of credit. It is not recommended to appoint a Western or an American bank as a designated bank in the case when it is assumed a delivery of documents on Russian or Ukrainian languages (for example, railway invoices, custom documents and other). Determination of UPB as designated bank on letter of credit is recommended; otherwise UPB does not guarantee correct verification of documents.
To appoint of designated bank without modern communications (there are in Russia, CIS countries and Africa) is most undesirable, because in case of need it is practically impossible to annul a letter of credit beforehand. Acceptance of letter of credit must be coordinated with employee of trade finance department. It is preferably, that it was one of the UPB correspondents.
Subordination of uniform customs
Uniform customs for documentary credit is practically an international standard on realization of letter of credit operations.
UPB provides both payment guarantees and other types of guarantees
A guarantee ensures performance of obligations, according to that a underwriting bank undertakes a commitment to beneficiary (executed in writing form or in message form) to pay a sum in case of nonfulfillment of obligations in full or their part in case of demand of the beneficiary and observance of all requirements foreseen by the terms of guarantee.
Underwriting bank commitment to beneficiary does not depend on primary obligation (its termination or ineffectiveness), in particular, when reference to such obligation is directly contained in details of guarantee.
Payment guarantee is liabilities of bank issued by command of Buyer in favour of Seller to pay Seller a settled amount in case of non-fulfillment by the Buyer of the obligations under payment for the goods delivered.