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Letters of credit

IN PRACTICE

Doing business internationally

Do you regularly buy or sell on the international stage? You're probably all too familiar with the challenging period that exists between ordering a goods shipment, taking delivery of it and paying for it.

YOUR BENEFITS

Better protected

As a seller, you want to get paid as quickly as possible. As a buyer, you want to receive the goods you ordered, on time. A letter of credit obliges the buyer's bank to pay the supplier once a series of conditions are met.

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Want to know what letters of credit can do for you and your business? Book a no-obligation appointment with your advisor, online or at a branch.

Benefits for importers: delivery guarantee

The buyer ensures that it only pays for the goods after delivery, in accordance with the commercial terms of the contract and upon presentation of documents consistent with the terms and conditions of the letter of credit, proving that the goods have been delivered on time.

It's the buyer who defines the documents to be submitted to the bank, to ensure that the terms and conditions of the letter of credit reflect the contractual provisions as closely as possible.

Benefits for exporters: payment guarantee

This cannot be modified or cancelled without the seller's consent. The seller is protected in that the buyer's bank gives a guarantee to the seller, obliging the bank to make the payment if the contractual conditions are met.

The letter of credit can be confirmed by a second bank, usually located in the seller's country. This adds an independent undertaking on identical terms to those of the issuing bank. This confirmed credit offers maximum security to the seller.

Letters of credit: the eight steps

  1. The buyer and seller enter into a sales contract, in which one of the articles provides for the opening of a letter of credit in favour of the seller.
  2. The buyer submits a request to its bank to open a letter of credit, specifying the conditions under which the credit is to be issued in favour of its supplier.
  3. The bank receiving the buyer's instructions issues the letter of credit in favour of the seller.
  4. A third-party bank, corresponding with the issuing bank in the seller's country, may confirm the credit at the request or with the authorisation of the issuing bank.
  5. The seller receives the letter of credit, checks the terms and conditions, and ships the goods according to the specified arrangements.
  6. The seller submits the required documents to the confirming bank. If these conform to the terms and conditions of the letter of credit, the bank pays the seller in the agreed way.
  7. The confirming bank sends the documents to the issuing bank, which settles its debt with the confirming bank after an additional check of the documents.
  8. The issuing bank hands over the documents to the buyer and recovers the amount paid to the confirming bank according to the agreed arrangements.

Clear documents and terms

For a letter of credit, banks may require the following documents:

  • Commercial documents: invoices, inspection certificates, customs documents, packing lists, measurement certificates etc.
  • Transport documents: bills of lading, air waybills, express courier receipts etc.
  • Insurance documents

Commercial terms (Incoterms) are a key element of international sales contracts, as they define the sharing of costs and risks between the parties. The rules in force for letters of credit are the Uniform Customs and Practice for Documentary Credits (UCP) of the International Chamber of Commerce.

Connexis Trade: minimal formalities

Using our Connexis Trade tool, you can submit your letter of credit application online. You can then 
track the status of your transactions in real-time and be directly informed when the goods are 
delivered and you need to pay the issuing bank.

Find the loans that suit your cash-flow needs

Do you need to pay suppliers or compensate for a delayed payment from a client? Use our loan 
simulator to find the loan that best suits your cash-flow needs. 

Carry out a simulation

Interested in letters of credit?

LOANS

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Bank guarantee

Reassure your business partners with a bank guarantee tailored to your needs. By choosing one of the various bank guarantees available, you can be sure of incoming payments and you can strengthen your relationships with your partners.

Find out more about bank guarantees

Legal information

Lender: BNP Paribas Fortis SA, Montagne du Parc 3, 1000 Brussels – RPM Brussels – VAT BE 
0403.199.702. Subject to acceptance of your application.

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