Payment upon presentation of documents at the counters of the supplier's bank.
Letters of Credit are governed by the Uniform Customs and Practice for Documentary Credits, that cover the following:
Payment after a specified period as agreed between the buyer and seller.
Payment by more than one method, normally triggered by presentation of certain documents.
This is usually an undertaking issued by FNB Botswana on behalf of the importer/exporter to pay the beneficiary the value of the letter of credit - provided that the terms and conditions have been fulfilled. Letter of Credit is also known as Documentary Credit.
Offers the exporter and importer maximum security
Includes insurance - both the exporter and the importer are covered
It's a binding undertaking by the bank to pay a sum of money on behalf of the importer/exporter. The payment is conditional on compliance of documents from the exporter through their bankers.
The importer is assured that the correct goods are shipped.
The exporter is sure of payment upon receipt of goods by the importer, provided the terms and conditions are fulfilled.
It removes many of the financial risks from Trade & Working Capital Division - the only remaining risk is that of the financial standing of the bank and the stability of the country where the bank resides.
You need a contract or pro forma from your supplier.
Yes insurance is compulsory for order financing. If the shipment terms are FOB (free on board) then the Buyer must ensure that goods are insured in transit.
Insurance cover should be 110% of the invoice value, with claims payable in the buyer's country.
These are shipment terms, e.g. FOB, CIF, CPT... agreed between the buyer and seller and should reflect in the pro forma invoice.
This is an undertaking by a bank that should the buyer go bankrupt; the confirming bank will pay anyway.