IMPORT-EXPORT SERVICES
Our Import-Export Department is committed to making your transactions with international partners easier and more secure. Experienced and conscientious advisors provide all the support you need.
Letter of credit
Letter of guarantee
Documentary collection
Letter of credit
When you ask National Bank for a letter of credit, you have the assurance that the Bank will make available to the beneficiary the amount agreed to by both parties, in compliance with the terms and conditions of the documentary credit agreement.
A letter of credit is often required for the payment of goods or services that are imported or exported, because it is a very secure method of ensuring payment.
Types of letters of credit
An irrevocable payment commitment that cannot be changed or cancelled without the consent of all parties concerned.
- Confirmed irrevocable letter of credit
The value of a letter of credit is based on the issuing bank and the country in which it is issued. When its value seems uncertain, the beneficiary (seller/exporter) may require that the letter of credit be both irrevocable and confirmed.
The issuing bank then calls a second bank, usually the exporter’s bank to confirm the letter of credit. If the bank agrees, it then undertakes to pay the beneficiary on presentation of documents that comply with the term and conditions of the letter of credit, regardless of any financial uncertainty surrounding the issuing bank and its country. The cost of confirming the letter of credit is generally borne by the beneficiary (the seller/exporter).
With a transferable letter of credit, the original beneficiary (or primary beneficiary) acting as an intermediary for the business transaction can transfer its rights under the letter of credit to one or more secondary beneficiaries, who are generally the actual suppliers of the goods or services, up to the total amount of the letter of credit.
A letter of credit is transferable only if specified by the issuing bank; the secondary beneficiaries therefore cannot transfer their rights to a third beneficiary.
The simplified letter of credit is designed for small or medium-size enterprises that often do business with the same supplier and applies to amounts of less than $65,000.
With all the features of the conventional letter of credit, the simplified letter of credit offers greater flexibility and can be processed faster because only two documents (a commercial invoice and a shipping document) are required.
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Letter of guarantee
In your international transactions, you may at times be obliged to make certain commitments to prove your creditworthiness. For such transactions, our experts offer various types of guarantees to reassure your trade partners that you'll meet your specific obligations.
A bank letter of guarantee is a document by which the bank makes an irrevocable commitment to compensate your client if you are unable to honour your financial or contractual obligations.
The commitment undertaken by the bank at your request is completely independent of the contract binding both you and your client, although it may make reference to it. In essence, the bank substitutes itself for you in order to guarantee payment to the beneficiary. The strength of the guarantee is that the bank will compensate your client (beneficiary) upon presentation of documents certifying that a default or deficiency has occurred, on your part, in fulfilling the contract.
A letter of guarantee for every situation
A bid bond guarantee is often be necessary when you want to respond to a call for tender for a construction or supply project and is a strong indication that your tender can be taken seriously. For instance, if you were to withdraw your tender and refuse to accept the contract or to supply a performance bond as generally required, the beneficiary of the bank guarantee would then be compensated and could issue another call for tender.
Once a contract is awarded, buyers often want to be protected against failures through the issuance of a performance bond. The performance guarantee protects them against project deficiencies on the part of the seller. Should there be any deficiencies, the funds obtained through the garantee could be used by the buyer for repairs or to complete unfinished work.
If the buyer has given you an advance, you may be required to repay it if the deal falls through. With an advance payment guarantee, the buyer is assured repayment of such an advance.
With this type of guarantee, the payment of financial obligations (e.g., accounts receivable, lease, open account) is secure. For example, the financial letter of guarantee could be useful in a situation where an obligation from a sale requires an endorsment.
The standby letter of credit originated in the United States at a time when banks were prohibited from issuing letters of guarantee. A standby letter of credit plays the same role as a letter of guarantee and can be used in all of the above situations, notably to demonstrate the seriousness of a tender, contract or financial commitment.
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Documentary collection
Bank assistance to simplify documentary collection
Documentary collection is the procedure by which a bank can be mandated to take payment of an amount due from a buyer, against presentation of documents (e.g, business invoices, shipping documents, various certificates) along with any financial documents (e.g., drafts, bills of exchange, promissory notes).
The bank carries out the function of agent and intermediary between the seller (exporter) and the buyer (importer). It presents the importer, on the instruction of the exporter or their bank, documents in respect of the shipping of goods or the execution of a service, in order to obtain either the payment (payable at sight) or the buyer's acceptance once the documents presented are payable at maturity.
Contrary to the irrevocable letter of credit, wherein an issuing bank irrevocably commits to making a payment, the bank that presents the documents to the buyer is in no way obliged to pay out if the buyer does not fulfil his payment obligations.
This product is used when a buyer and seller have built a relationship on trust and the risks related to the political, economical and legal situations of the seller's country are acceptable to the buyer.
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