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Letters of credit are one of the methods of payment that may be used to settle payment for sale of goods between exporters/sellers and importers/buyers.
NAB issues import letters of credit for its customers, and in doing so, provides a definite commitment to pay the beneficiary (exporter), providing all terms and conditions of the letter of credit have been strictly adhered to.
There are various types of letters of credit such as:
- Irrevocable
- Revocable
- Sight or term (documentary)
- Confirmed
- Standby
- Transferable
- Back to back
- Revolving
All letters of credit issued by NAB, are irrevocable and subject to Uniform Customs and Practice for Documentary Credits (UCP600, 2007 Revision).
Exporters/sellers may request a letter of credit, when they are unsure of the importer's/buyer's ability to pay. Under a letter of credit, the issuing banks creditworthiness is substituted for that of the importer/buyer and this security for the exporter/seller is paramount. Although it is important to note that a L/C does not replace the need for a clear and concise contract of sale.
Importers/buyers may request letter of credit payment terms when they need goods by a certain date or they require specific documentation for importation/delivery.
Further details regarding letters of credit are detailed in NAB's publication "Finance of International Trade" which is available through your business banker or you may request a copy by completing the email attached to this website.
For further information regarding letters of credit, or to make an appointment with a Supply Chain Finance specialist, contact your NAB Business Banker.
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