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Letters of Credit

  • Stephen A. Jones
Chapter

Abstract

Letters of credit provide a bridge between the conflicting needs of seller and buyer in terms of risk mitigation and financing. Their use, operation, issuing bank’s risk exposure, and risk mitigating features are explored. The optimum structuring of credits from the perspectives of the issuing, nominated, and negotiating bank are discussed and how the documentary credit can be used as a source of repayment for pre-shipment finance. The importance of availability, place of expiry, presentation period, and reimbursement are highlighted, supported by example clauses. The use and risk aspects of confirmation, the benefits of a ‘may add’ instruction on freely negotiable credits, and silent confirmation are explored. Methods of discount and negotiation finance, letters of allocation, and usance payable at sight are also explained.

Keywords

Availability Calculating the credit limit Confirmed credits Credit risk Documentary risk Financing Negotiation Reimbursement authorisation and undertakings Silent confirmation Structuring 

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Stephen A. Jones
    • 1
  1. 1.AXS Trade Finance Ltd.Solihull, West MidlandsUK

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