Documentary and Standby Letters of CreditAbout Product

Product description

Letter of Credit (L/C) is an obligation of a bank, whereby the bank by order of its client (applicant, buyer) undertakes to the beneficiary (supplier) to effect specified financial performance (payment, deffered payment, acceptance of a draft or negotiation), provided specified documents are presented in conformity with the terms and conitions of such undertaking. It can be used in international as well as domestic transactions. This undertaking ensures to the supplier that he receives a payment from the bank, if the terms and conditions of the L/C are met, and also guarantees to the buyer the he does not pay for documents, which do not comply with the conditions given by him.

The parties to an L/C transaction:

• Applicant (buyer)
• Issuing Bank (buyer’s bank)
• Beneficiary (supplier)
• Advising or Confirming Bank (supplier’s bank)

Česká spořitelna serves as an opening as well as advising or confirming bank for both domestic and international transactions.

With respect to bank's role in the transaction, an L/C can be:

• Import or domestic buyer’s L/C
• Export L/C or domestic supplier’s L/C

With respect to the Issuing Bank's obligation, an L/C can be:

• Revocable L/C (can be amended or cancelled by the opening bank at any time without prior notice to and consent of the beneficiary; revocable L/C's are in current practice very uncommon)
• Irrevocable L/C (cannot be amended or cancelled without the consent of the opening bank, the confirming bank, if any, and the beneficiary)

With respect to the Advising Bank's obligation, an L/C can be:

• Advised without confirmation (an advising bank does not enter into obligation under such L/C)
• Confirmed (an advising bank enters into the same obligation towards the beneficiary as an Issuing Bank)