Trade Services

• A documentary payment tool that does not involve any obligations
• A form of payment in which the issuance of documents as well as goods are subject to payment or bill acceptance or meeting other conditions
• Is an extraordinarily advantageous payment term for importing, i.e., for a buyer
• For the seller, documentary collection as a payment term is only interesting when there are no doubts about the willingness of the buyer to take over the goods

Advantages/disadvantages

• A lower price compared to a documentary letter of credit
• Disadvantage for the exporter: the seller can be certain that the buyer will not obtain documents other than against performance (documents of title are controlled by the banking system), but there is no guarantee that the delivery will be paid.

Types of documentary collection

• Documentary collection with D/P condition
  "Documents against payment" means that documents will not be handed over by the bank to the buyer unless the amount to be collected is paid.
• Documentary collection with D/A condition
  With this instruction, the bank hands over documents against bill acceptance or against the issue of a promissory note. This is an acceptance loan. The seller can request that the bill be co-accepted by a first-rate bank or secured by a bank guarantee. The buyer thus obtains documents as well as goods before paying.

A Letter of Credit is a written obligation of the bank issued upon request of the client (ordering party, buyer) to pay a certain amount according to the conditions defined in the letter of credit.

The bank's condition for paying the Letter of Credit is the submission of all required documents by the seller.

Participating banks check only documents, not products or services. Letter of credit payments are completely separate from contracts.

Benefits for the beneficiary of the Letter of Credit (seller)

• The seller has an outstanding claim towards the bank and not towards the buyer
• The seller can be certain that the payment will be made after fulfilling the conditions
• The seller can use the letter of credit as a guarantee for suppliers
• The claim towards the bank can be sold further, to obtain the funds ahead of time
• The seller can obtain a loan from its bank, if the letter of credit is of sufficient quality

Benefits for the ordering party of the letter of credit (buyer)

• The letter of credit represents considerable pressure on the seller to execute the delivery in due time and at the requested quality
• The seller can be certain that it will only pay as soon as the stipulated conditions are met
• Allows the buyer to obtain more advantageous price conditions thanks to solid payment security

Types of documentary letters of credit from the viewpoint of legal liability

• Advised Letter of Credit
  In this type of letter of credit, the bank of the beneficiary does not assume an obligation towards the beneficiary. The bank only informs the beneficiary of the conditions of the letter of credit and makes its execution possible.
• Confirmed letter of credit
  The bank of the beneficiary (seller) can confirm the letter of credit and assume the obligation towards the beneficiary.

For the letter of credit to fulfil its function, it must be opened as irrevocable. If the letter of credit text does not mention anything else, it is considered irrevocable pursuant to the Uniform Customs and Practices of the International Chamber of Commerce.

A documentary Letter of Credit is governed by the uniform customs for Documentary letters of credit of the International Chamber of Commerce, UCP600.

A Bank Guarantee is a written commitment from a bank stating that a certain sum will be paid to an entitled beneficiary based on his/her first request and a statement that the ordering party did not fulfil its commitments.

Guarantees are usually issued with the payment condition "upon first request and without objections", which in practice means that the bank is obliged to pay immediately without examining further circumstances, naturally provided the conditions of the guarantee have been satisfied.

Advantages of bank guarantees

• Bid Bond / Tender Guarantee
• Advance Payment Bond
• Performance Bond
• Retention Bond
• Warranty Bond
• Payment Guarantee
• Rental / Lease Guarantee
• Customs Guarantees
• Excise Tax Guarantee