Documentary credits

Mitigate risks in international trade deals when:

• The parties to the transaction have new and untested business relations,
• The seller is not sure about the buyer's ability to meet his payment obligations, and/or the buyer is not sure that the seller is able to deliver the goods,
• Legislative acts of the buyer's or the seller's country stipulate the letters of credit to be the compulsory means of payment in import-export operations,
• Contracts involve large-scale projects or custom- made goods,
• The economic or political situation in the buyer's or seller's country is unstable,
• The seller requests a 100% Letter of Credit instead of an advance payment.

Reduce the following risks in international operations - from the point of view of the buyer:

• Production, performance risk: due to technical, financial or any other considerations, the seller is unwilling or unable to perform under the contract,
• Payment (solvency) risk: the buyer has made a prepayment to the seller, but the seller, although it has failed to perform under the contract, is not able or refuses to refund the advance payment,
• Political risk: the political situation in the seller's country jeopardises performance under the contract,
• Payment risk associated with the political situation in the seller's country: sudden changes in foreign exchange regulations restrict refund of the advance payment.

The buyer does not have to make an advance payment for the goods the delivery of which will possibly take place after a longer period of time (by making an advance payment the buyer actually provides the seller with an interest free loan).

The buyer can better plan his cash flow.

By indicating the required term for shipment of merchandise in the Letter of Credit, the l/c guarantees that the buyer receives the goods in the time specified and acceptable to the buyer.

Under the l/c, the Bank will only make payment after all documents have been presented in strict compliance with the terms and conditions of the Letter of Credit, including, if appropriate, evidence of shipment.

Simplify issuance of Letters of Credit for those customers who use this product regularly, Swedbank offers to create a Letter of Credit limit agreement.

Unless the Letter of Credit permits a deferred payment for goods (e.g., 60 days after the date of shipment; 90 days after the date of the invoice, etc.), the bank must effect payment 'at sight' - upon receipt of documents.

If the documents presented to the bank fully comply with the terms and conditions of the Letter of Credit, the buyer may not prevent the bank from making the payment even if the buyer is not satisfied with the delivered goods. The bank deals in documents and not in the underlying goods. The contract between buyer and seller is not binding upon the bank.

• Hold a Current Account with Swedbank,
• Complete the form document"Irrevocable Letter of Credit Application"
• Agree with the Bank on the collateral for the Letter of Credit,
• The company's financial documents.

Funds in the amount of the Letter of Credit transferred to a special Letter of Credit cover account.

Commercial pledge on the company's assets, mortgage and pledge on the company’s real estate registered with the State land Service.

Any other type of collateral acceptable to the Bank. The bank may request the customer to submit additional documents in order to be able to take a decision (balance sheet, statement of income, statement of cash flow etc.).

Mitigate risks in international trade deals when:

• The parties to the transaction have new and untested business relations,
• The seller is not sure about the buyer's ability to meet his payment obligations, and the buyer is not sure that the seller is able to deliver the goods,
• Legislative acts of the buyer's or the seller's country stipulate the letters of credit to be the compulsory means of payment in import-export operations,
• Contracts involve large-scale projects or custom- made goods,
• The economic or political situation in the buyer's or seller's country is unstable,
• The seller requests a 100% Letter of Credit instead of an advance payment.

Reduce the following risks in international operations - from the point of view of the seller:

• Production, performance risk: the buyer wishes to cancel or change the order without the consent from the seller,
• Payment risk: the buyer's default or inability to meet its payment obligations,
• Political risk: the political situation in the seller's country jeopardises performance under the contract,
• Payment risk associated with the political situation in the buyer's country: changes in currency exchange regulations restrict payments in certain currencies or to certain countries.

The bank that has issued the Letter of Credit has an obligation to pay, therefore, if credit conform documents are presented to the bank, the bank will effect payment even if the buyer defaults or is unable to meet their payment obligations,

The Letter of Credit allows the seller to be sure that the seller will receive a specified sum of money within a specified period of time if documents in strict compliance with the terms and conditions of the Letter of Credit are presented to the bank,

The seller can better plan his cash flow.

To finance export transactions. If the Letter of Credit envisages a deferred payment (payment within 30 (45, 60...) days after shipment), the bank can pay to the customer the amount of money indicated in the documents, less interest and charges prior to receipt of payment from the bank issuing the Letter of Credit.

• Hold a Current Account with Swedbank,
• Swedbank receives the Letter of Credit issued to the buyer. The Letter of Credit is then advised to the seller.

Customers should remember that only the bank can verify authenticity of the Letter of Credit. Therefore it is not advisable to accept Letters of Credit directly from the business partner but have them advised via Swedbank. Goods may be sent to the buyer only after Swedbank Trade Finance Department staff have authenticated the Letter of Credit and only if the customer (seller) agrees with all the terms and conditions of the Letter of Credit.

Swedbank agrees to finance only those Letters of Credit that have been issued by the banks for which sufficient lines of credit have been established.