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What is payment at sight?

Payment upon presentation of documents at the counters of the supplier's bank.

Uniform Customs and Practice for Documentary Credits

Letters of Credit are governed by the Uniform Customs and Practice for Documentary Credits, that cover the following:

  • It is hard to imagine dealing with credits without the security of international uniformity. The International Chamber of Commerce (ICC) is an international body that has defined worldwide standards for the operation of documentary credits.
  • These standards are embodied in the Uniform Customs and Practice for Documentary Credits, commonly referred to as the UCP 600. The UCP 600 is not a force of law but a set of rules and regulations that are binding on the parties who subscribe to it.
  • Members of the ICC in more than 130 countries subscribe to the UCP 600. It follows, therefore, that most reputable banks in the world make credits issued by them subject to UCP 600. Any credit that does not state that it is subject to UCP 600 must be approached with caution.

What is deferred payment?

Payment after a specified period as agreed between the buyer and seller.

What is mixed payment?

Payment by more than one method, normally triggered by presentation of certain documents.

Letter of Credit

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.

Why you need this

It's secure

Offers the exporter and importer maximum security

It's insured

Includes insurance - both the exporter and the importer are covered

It's binding

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.

What you can do with this

Eliminate foreseeable risk

Assure the importer

The importer is assured that the correct goods are shipped.

Ensure delivery

The exporter is sure of payment upon receipt of goods by the importer, provided the terms and conditions are fulfilled.

Reduce the risk

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.

What it costs

Working for you

  • An advising fee will be charged by the bank informing you that an LC was received in your favour.
  • Payment commission: charged by the bank for checking that your documents comply with the terms and conditions of the LC.
  • Confirmation commission: this will only apply in the event that a bank has added its confirmation to the LC and the price depends on the country and issuing bank risk.
  • Other fees: amendments, courier, SWIFT, etc.

What is the first step to establishing a Letter of Credit?

You need a contract or pro forma from your supplier.

What are the payment terms agreed with Supplier?

What is payment at sight?
What is Deferred Payment?
What is mixed payment?

Do I need to worry about insurance?

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.

What are Incoterms?

These are shipment terms, e.g. FOB, CIF, CPT... agreed between the buyer and seller and should reflect in the pro forma invoice.

What is Confirmation of Letter of Credit?

This is an undertaking by a bank that should the buyer go bankrupt; the confirming bank will pay anyway.

Getting it made easy

Letter of Credit (Documentary Credit)

How to get it

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