A Letter of Credit is an instrument issued by a bank to a named party, which substitutes
the bank's creditworthiness for that of its customer. The letter of credit states
the bank's willingness to guarantee its customer's credit and the bank's conditional
obligation to pay the party named in the Letter of Credit.
A Letter of Credit allows importers and exporters to exchange goods for payments.
Generally, Letters of Credit can be referred to as Import or Export Letters of Credit
depending on whether the customer viewing the Letter of Credit is the Importer or
the Exporter. In other words, in an Import Letter of Credit the Importer will open
a Letter of Credit through which it will pay the exporter; in an Export Letter of
Credit the exporter will get paid through the Letter of Credit opened on its behalf.
Nevertheless, Import and Export Letters of Credit are the same instrument with the
particularity that they are viewed from opposite sides.
The Import Commercial Letter of Credit is nothing more or less than a letter, which
can be as simple or as complicated as the buyer (importer) and his bank is willing
to issue or as simple or complicated as the beneficiary (seller) is willing to accept.
Issued primarily for the purpose of financing transactions involving the shipment
of goods across borders.
At Access Bank, we offer different types of letters of Credit ranging from Unconfirmed
to Confirmed and Zero Cash Collaterised to full Cash Covered Letters Of Credit.
Export Letters of Credit Confirmations allow Exporters to mitigate both the country
risk of the importer and the issuing-bank commercial credit risk. In Export Letters
of Credit, Access Bank confirms Letter of Credit in favor of the Exporter, where
Access Bank adds its irrevocable commitment to honor drafts and documents presented
in conformity with the term of the Letter of Credit.
Standby Letter of Credit / Guarantees
Standby letters of credit/Guarantees are instruments used by the bank on behalf
of its customers that they are willing to make payments on their behalf, if and
when called for. Most often, these payments are to be made when the customer has
failed or refused to do so themselves. The value of the bank’s commitment
lies in the fact that the bank is obligated to pay, even in the event of a dispute,
as long as the documents specified in the Standby L/C are presented as required.
A standby letter of credit, however, often takes the form of an obligation by the
issuer to the beneficiary
- To repay money borrowed by or advanced to or for the applicant.
- To make payment because of a claimed default by the applicant in the performance
of an obligation. As such, it may require documents are simple as a statement signed
by the beneficiary attesting to the existence of one of these types of situations.