Financial instruments for efficient company's activity financing
The documentary collection is a means of settlement when a seller, having forwarded the goods, presents commercial and/or financial documents through a bank for the buyer to pay/accept them. Having paid the commercial documents (invoices, transportation documents, certificates, etc.) or having undertaken to pay the financial documents (having accepted a draft), the buyer receives them from the bank and acquires the right to the goods.
A documentary letter of credit is a commitment of the bank issued at the request of the buyer to pay the seller of goods a certain amount, after the latter has submitted documents to the bank, which comply with the conditions and terms of the letter of credit. A letter of credit can be used to pay not only for the delivered goods but also for the works performed or services rendered.
Payment under export letter of credit (L/C) prior to the agreed maturity (discounting) offers the opportunity to reduce business risks and receive financing. To this end, L/Cs with deferred payment are used for settlement purposes. Having received an export L/C with deferred payment, shipped the goods and presented L/C documents to the bank, the seller may ask the bank to pay under them before the maturity, i.e. discount the documents.
What guarantees does the bank issue?
The bank guarantee is the obligation of the bank to pay a certain amount of money or part thereof if the client of the bank for whom the bank guaranteed fails to fulfill its obligations to the beneficiary of the guarantee. The guarantee is an abstract obligation of the bank, which does not depend on the contract.
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