Letter of Credit

One of the most important financial tools for international trade, the documentary Letter of Credit is an effective solution that helps eliminate risks for both the buyer/importer and the seller/exporter.

Most Letters of Credit are governed by rules known as Uniform Customs and Practice for Documentary Credits, which are set by the International Chamber of Commerce. There are a number of benefits to using a Letter of Credit:

  • The buyer is able to buy the goods and pay for them after shipment of goods

  • There is no financial risk to the buyer if the goods are not shipped after the order is placed

  • The issuing bank extends its credit to the buyer which helps him to buy from new vendors

  • No funds are blocked until documents are received after the shipment, thus improving cash flow

  • The buyer is assured that goods are shipped on time, failing which there is no liability to pay

  • The seller does not run the risk of cancellation of the order as the Letter of Credit is irrevocable

  • Payment is assured after shipment on submission of documents complying with the terms of the Letter of Credit and other conditions. So he does not run the risk of non- payment after the shipment

  • It helps to raise finance for production of goods thereby meeting working capital requirements

Standby Letter of Credit (SBLC)

A Standby Letter of Credit, commonly known as an SBLC, is a type of warranty for financial contracts. Performing essentially a backstopping function, the written obligations of an issuing bank to pay a sum of money to a beneficiary on behalf of their customer in the event that the customer does not pay the beneficiary.

It is important to note that SBLCs apply only in the case that the issuing bank's commitment to pay is not contingent on the existence, validity and enforceability of its customer’s obligation. Benefits of using an SBLC include:

  • Quick, flexible, simple, and affordable

  • Allows the importer to establish a credit history with the exporter

  • Save considerable time and financial resources with repeat business because the importer only needs to cover the maximum exposure risk of the exporter at any one time with one SBLC covering an entire year

  • Ensures the delivery of goods or service in accordance with the terms of the trade contract

  • Provides ease of payment as the bank only needs to establish default of payment or performance from a few document

  • Payment from the importer is faster because once documents have reached the airport or port, only 3-7 days are required to review the documents and finalize the acceptance of the goods

Lines of Credit

Another essential component of modern-day business financing, Allianz Energie AG offers its clients access to lines of credit (secured and unsecured) in accordance with their needs.

Allianz Energie AG maintains a number of Issuing Institutions registered in various locations around the world, financial companies that are authorised to issue financial instruments. Allianz Energie AG also works with a number of banks that can issue instruments on its behalf.