The documentary Letter-of-Credit is a bank's irrevocable written obligation to the supplier of the goods or services to pay certain financial amount according to the L/C conditions, provided that the recipient of the Letter-of-Credit shall furnish the documents set forth in the L/C conditions. The documentary Letter-of-Credit is a hedging and also the most sophisticated payment tool which is used mainly in the international and also domestic trade.

Use of Letter-of-Credit:

The documentary Letter-of-Credit is usually used by the seller or the buyer in transactions where documents must be furnished, which guarantee the ownership title to the goods or the quality thereof, etc. The Letter-of-Credit may also be used in trading with real estates, securities and in other cases which require a bank's obligation for payment.

Tatra banka provides:

• from the aspect of our client, the following types of Letter-of-Credit:

  • export Letter-of-Credit - where our client is in the seller's position and via Tatra banka, he will receive a Letter-of-Credit issued in his favour by the buyer's bank. By confirmation of the Letter-of-Credit upon request, our bank guarantees to the exporter or the seller for performance under the Letter-of-Credit, regardless the possible development in the bank or in the customer's territory,

  • import Letter-of-Credit - where the documentary Letter-of-Credit is issued by Tatra banka upon buyer's request in favour of the seller,

  • stand by Letter-of-Credit - which has similar function as a guarantee; this type of documentary Letter-of-Credit with guarantee character is used mainly in the U.S.A. where issuance of bank guarantees of the European type is not permitted by the law,

  • transferable Letter-of-Credit - the main facility of which is that the rights from the Letter-of-Credit may be transferred by the original beneficiary to another person. It must be clearly identified as transferable.

• purchase of receivables from documentary Letter-of-Credits with deferred maturity of 30-180 days following acceptance of the documents by the issuing or confirming bank,
• consultancy already at the stage of preparation of the contract, or in modification of the documents required by the Letter-of-Credit,
• experience in using special types of Letter-of-Credit (revolving, transferable, back to back, or with a red or green clause),
• advance payment for the Letter-of-Credit payable at sight, in the amount of 70-90% of the value of the documents furnished in accordance with the conditions set forth in the documentary Letter-of-Credit.

Benefits for the client:

• In the L/C transactions, the Unified International Rules apply, published by the International Chamber of Commerce in Paris,
• payment by the buyer is guaranteed by the bank, i.e. the seller shall have a receivable to the bank and not to the buyer,
• it ensures to the buyer that payment shall be made only upon fulfillment of all conditions prescribed by the Letter-of-Credit,
• if the seller's bank confirms the Letter-of-Credit, the seller shall be released from the risk of failure to pay by the buyer's bank,
• the buyer applies pressure on the seller to make the delivery on the determined date and in the required quality,
• the option of financing the export Letter-of-Credit by the bank,
• the option of variable distribution of payment of bank charges among the business partners.

Target group: natural and legal persons, but particularly legal persons