Letter of Credit

Letter of credit is an international payment instrument by which the applicant – importer makes available to the beneficiary – exporter, through a commercial bank, a certain amount of foreign currency funds, which the beneficiary may collect only after presenting L/C documents and meeting certain conditions.

Letters of credit are opened in accordance with the ICC Uniform Customs and Practice for Documentary Credits, 2007 Revision, Publication No.600.

Upon the customer’s order, Erste Bank a.d. Novi Sad opens all types of letters of credit (payable at sight, with deferred payment, non-transferable, transferable, stand-by, unconfirmed, confirmed ...) in accordance with the customer’s instructions. The Bank makes a payment against the letter of credit after receiving the L/C documents in accordance with the terms of the letter of credit. The Bank will always help the customer by providing its opinion and advice in connection with L/C documents. 

Advice on L/C details in concluding a sales agreement:

  • Specify necessary details and conditions for opening, as well as for using the letter of credit in the sales agreement: L/C type, L/C validity period, delivery time limit, whether partial delivery and reloading are permitted, Incoterm, L/C payment method, the documents necessary to present for payment, who bears foreign expenses and other.

L/C types:

  • Nostro (import) letters of credit are opened by domestic banks upon the order of their domestic customers (importers) in favour of foreign sellers (exporters).
  • Vostro (export) letters of credit are opened by foreign banks for domestic sellers (exporters).

After receiving vostro letters of credit in favour of its customers – exporters, Erste Bank provides the following services:

  • Notifies and forwards the letter of credit to its customer
  • Provides necessary information and expert advice in connection with meeting the L/C terms and thereby the preparation of documents as well
  • Enables inspection and sending of the L/C documents for collection
  • Confirmed letter of credit is a letter of credit by which the confirming bank assumes joint and several payment liability in addition to the issuing bank.
  • Transferable letter of credit is a letter of credit that allows the (first) beneficiary to transfer the letter of credit to another beneficiary. The letter of credit is transferred to another beneficiary by a special statement (transfer order). By transferring the letter of credit, the right of collection and the obligation of goods delivery from the letter of credit and the presentation of documents are transferred to another beneficiary.
  • Letter of credit payable at sight is paid by the bank immediately against the presentation of the documents complying with the L/C terms.
  • Letter of credit with deferred payment (term letter of credit) is a type of letter of credit in which the payment becomes due on a specific date – most often on the 60th, 90th or 120th day from the date of the shipping document or invoice. It is a very good method for financing imports because it enables the importer to sell the goods until the deferred payment deadline and obtain the funds for L/C payment.
  • Stand-by letter of credit is an obligation of the issuing bank to pay against the letter of credit to the beneficiary, however, not against the presentation of commercial documents but on the basis of a written statement of the beneficiary that the applicant failed to fulfil its obligation from the underlying transaction. These letters of credit were created as a substitute for bank guarantees in the countries in which the issuance of certain types of guarantees was prohibited.