In international trade there is a number of key issues.One of the objectives is to reduce the risk of non-payment for goods or delivery failures.Even in the 17th century there was a fairly reliable tool for this reduction - a letter of credit.Over time, this letter has become a modern "documentary credit" ( accredo - Lat. trust ).
theoretical calculations in accordance with the "trust" scheme can be implemented in the domestic trade.However, in practice such payment by letter of credit is very rare.
This scheme gives both the supplier and the buyer absolute guarantee of reliability of the transaction.At the same time, documentary credit paired with a complex document.In this connection, increased cost of the entire procedure.Therefore, documentary credit is most often used in large transactions, and not small ones.In addition, such a system is used for establishing the relationship with the new partner or insufficiently reliable.In some states, for all transactions in the foreign market to be opened documentary credit in accordance with the tradition (eg India) or legislation (such as in Uzbekistan).
In recent years, as analysts note, the interest in this system is growing continuously.
documentary letter of credit - is a contract.It contains a commitment by the issuing bank.Under this agreement the Bank on its own behalf or on behalf of the client against the documents that meet the conditions of the letter of credit, undertakes to make payment to the beneficiary (beneficiary) or appoint another executable (bank) to make this payment.
operations in accordance with the above system provides the following participants:
- memo beneficiary bank.In accordance with the request of the issuing bank it notifies (memo) the beneficiary of the letter of credit and its conditions.Advising Bank no responsibility for the provisions of the contract does not bear.
- issuing bank letter of credit.
- Beneficiary - the beneficiary.This person is intended or payment in his favor opens a letter of credit.
- executing bank.It is in accordance with the request of the issuing bank pays out against certain in the contract documents.It is often performed at the same time advising.
- applicant's letter of credit - the payer, the servicing bank has filed an application for the opening of contract.
Thus, in a procedure involving five subjects.However, as a rule, in practice they are four.And in some cases the number of participants may be reduced to three.At the same time advising bank acts as not only perform, but also issuer.
Letter of Credit is a certain means of payment, but it is not in this form of calculation.Experts often point to a difference in terms of "payment method" and the "form of the calculation."The first happened in terms of international trade, and is more complex and extensive than the second definition, which is used in the Russian financial law.
Each letter of credit, strictly speaking, is unique.Under each formed their contract.Together with this there are general criteria, according to which all the letters are divided into several groups.
thus distinguish uncoated and coated, irrevocable and revocable contracts.
uncovered letter of credit referred to in the event that the issuing bank guarantees payment even if no funds in the account of the applicant (available credit).The operation is called a covering if immediately after the statement by the bank on account of the applicant's reserved one hundred percent of the funds required for the payment.
revocable letter of credit referred to in the event that the issuing bank at any time can change or even cancel it, without notifying the beneficiary.Irrevocable contract can modify or cancel only after the consent of the beneficiary.
