A letter of credit is –
a settlement instrument that:
- at the buyer’s request, obligates the issuing bank to honour payment for shipped goods or rendered services upon presentation of compliant documents by the seller;
- facilitates business growth by enabling safe transactions in the international market where mutual trust may be limited;
- provides financial security, as payment is made only after all terms of the letter of credit have been satisfied;
- protects both buyer and seller against non-performance of contractual obligations;
- can be flexibly adapted to the individual sales contract by selecting preferred terms and payment conditions.
Types of letters of credit
Payable upon submission of documents or deferred payment.
Negotiation credit – the bank is authorised to purchase the seller’s documents and pay their value immediately or upon maturity of the deferred payment term.
Acceptance credit – payment is effected upon acceptance of a bill of exchange and at the maturity of the deferred payment term.
Unconfirmed credit – payment is guaranteed solely by the issuing bank, and risk depends on its reliability.
Confirmed credit – payment under the credit is additionally guaranteed by another (confirming) bank.
Transferable credit – allows the credit to be transferred to another (second) beneficiary. In such cases, the first beneficiary acts as an intermediary and earns a trader’s margin.
Standby letter of credit – a financial instrument equivalent to a bank guarantee, ensuring fulfilment of financial or contractual obligations. For more details on standby letter of credits, refer to the Bank Guarantees section.
Why choose a letter of credit
with Artea Bank
Flexible solutions
We can issue letters of credit in both local and foreign currencies.
Security assurance
We verify in advance that the prepared documents comply with the terms of the letter of credit and, if required, provide our confirmation for letters of credit issued by other banks.
Prompt payment
At the seller’s request, we can effect payment even before the letter’s of credit maturity date, ensuring smooth cash flow for your business.
International reach
Benefit from our correspondent banking network – credits are transmitted securely and swiftly via the SWIFT system.
Global standards
All letters of credit we issue are governed by the International Chamber of Commerce rules (UCP 600).
Digital Accessibility
You can conveniently track information on issued and received letters of credit by logging into your online banking account.
Opportunities and benefits
A letter of credit provides security and reliability for both parties to the transaction,
enabling more efficient planning of goods delivery, payments, and financial flows.
- For the Buyer
- For the Seller
- Reliability: demonstrates your financial capacity, professionalism, and trustworthiness to suppliers.
- Secure payment: no advance payment required, the bank pays for goods only when the seller presents documents complying with the letter of credit terms.
- Precise shipment planning: you can set deadlines and other contractual conditions.
- Improved liquidity: you may apply to the bank for a credit line for issuing letters of credit, allowing better management of working capital and preservation of liquidity.
Letter of credit
process
The buyer and seller agree to use a letter of credit for settlement of goods. This ensures financial security for both parties and smooth execution of the transaction.
The buyer submits an application to their bank to issue a letter of credit under the terms agreed with the seller.
Upon approval, the bank issues the letter of credit in favour of the seller. The credit is transmitted to the seller through their bank via the SWIFT system, ensuring secure document delivery.
The seller ships the goods and presents the required documents to their bank as stipulated in the letter of credit terms. The bank checks compliance and forwards the documents to the buyer’s bank.
The buyer’s bank, after verifying the documents and finding no discrepancies, pays the seller’s bank (either immediately or at the deferred payment date specified in the letter of credit terms) and releases the documents to the buyer.
If discrepancies are found, payment is made only upon the buyer’s consent.
The seller’s bank credits the received funds to the seller’s account.
The letter of credit remains valid until the specified expiry date, i.e., the latest date by which documents must be presented for payment under the credit. This provides a clear and secure timeframe for transaction completion.
Are you a buyer and want a letter of credit issued?
Complete the application for issuing a letter of credit and submit it to your business client manager at our bank. The electronic application must be signed by your company’s executive manager using a qualified electronic signature.
Are you a seller and expect a letter of credit from the buyer’s bank?
Provide the buyer with Artea Bank’s SWIFT code: CBSBLT26. The buyer’s bank will transmit the Letter of Credit to our bank via the SWIFT system, and we will notify you upon receipt.
We understand your objectives and value your individual circumstances. Adapting to your needs is our mission. Yours is to build your future with confidence.
- Fees
- Application to Issue a Letter of Credit
- Application to Amend Letter of Credit Terms
- General Terms for Issuing Documentary Credits
- Cover Letter for Document Presentation under a Letter of Credit
- Bill of Exchange
- Application to Confirm a Documentary Credit
- General Terms for Confirmation and Prepayment (Discounting) of Documentary Credits
Frequently asked questions
Payment for documents complying with the terms of a letter of credit is guaranteed by the issuing bank. In contrast, under documentary collection, payment depends on the buyer’s willingness and financial capacity.
A letter of credit is preferable when the counterparty is new or unfamiliar, when greater security is desired, when the transaction is of higher value, or when this form of settlement is more common in the partner’s country.
Documentary collection is more often used when reliable trade relations already exist between buyer and seller and both parties seek lower costs, as documentary collection services are less expensive than letters of credit.
- You are a business client of Artea bank and hold an account with us.
- You have financial collateral – either own funds deposited in a special bank account or a credit line granted by us for issuing letters of credit.
- You have a contract, pro forma invoice, purchase order, or other document specifying the terms under which the letter of credit must be issued.
Detailed information on issued and received letters of credit is available by logging into online banking under Loans and Leasing → Letters of Credit.
Typically, the bank issues a letter of credit within two business days of receiving a properly completed and signed application, provided that financial collateral and/or other measures specified in the application have been submitted and all fees related to issuance have been paid.
To amend the terms of an issued letter of credit, complete and submit an application to amend the terms of the letter of credit.
If the credit amount is decreased or its validity period shortened, the amendment becomes effective only upon receipt of the seller’s written consent.
The buyer’s bank, upon receiving the documents, verifies their compliance with the letter of credit terms. If the documents comply, the bank makes payment in accordance with the payment terms stated in the letter of credit—either immediately or upon maturity of the deferred payment date.
If the documents do not comply, payment is made only with the buyer’s consent.
The bank may advance payment (discount) before the document payment date if:
- the letter of credit is confirmed by the bank;
- the seller’s documents comply with the letter of credit terms or the bank has received confirmation from the buyer’s bank that the documents have been accepted and will be paid on the deferred payment date specified in the credit;
- the seller and the bank have concluded an agreement for confirmation and prepayment (discounting) of documentary credits.
- For the buyer: banks settle only against documents that comply with the letter of credit terms, not against the goods themselves. Therefore, there is a risk that the documents presented may not reflect the actual goods received.
- For the seller: there is a risk that the issuing bank may fail to fulfil its financial obligations under the letter of credit.
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Factoring
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Guarantees
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