Letter of Credit
A letter of credit is a document issued by a bank to its client (importer or exporter), which indicates that the issuing bank will honour and pay a specified amount on demand for certain documents (such as export or import documents, or other documents related to the goods being exported or imported) when presented to the issuing bank.
The letter of credit usually specifies payment conditions, such as amount, currency, expiry date, etc., and may specify the banking services that are required to be performed.
It is by far a universally recognized instrument in international trade. It can be used for imports and exports but it is more frequently used in international importing transactions.
SBLC is a bank guarantee in LC format. As banks in US were not allowed to issue guarantees, US banks as an alternative, amended the format of guarantee slightly to adopt to a Letter of Credit.
Letter of Commitment
Commitment letters are contracts obtained by borrowers to assure the availability of financing from a lead lender. Borrowers may need commitment.
A Documentary Collection is the collection of a sum of money due from a buyer to a bank against delivery of shipping documents.
Factoring and Invoice Discounting
Financial factoring refers to an arrangement where the supplier sells his receivables in the form of invoice to the factor, who makes an advance payment of 60-85% of the receivable amount. Invoice discounting companies raise funds by selling these invoices back at a pre-established interest rate to investors, which are typically individuals or institutions.
Invoice discounting is a type of financing that allows buyers to create their own loans by using the value of goods they have purchased as collateral. Invoice discounting allows businesses, who may otherwise be unable to obtain loans due to poor credit histories or high transaction fees, to access lending in order to finance inventory. This gives them enough cash flow for the interim period before they receive payment from their buyer customer in order to pay off the loan and still maintain a profit margin.