Letters of Credit

Letter of Credit

Trade Team in the Trade Bank of Iraq will help you choose the right credit instruments for your import export business. Letters of credit are the most effective means of securing payment and offers buyers and sellers a higher degree of security.

In a Letter of Credit:

• An importer (buyer)’s bank conditionally guarantees payment to the exporter providing documents submitted by the exporter comply with all the conditions specified.

• An exporter (seller) receives the conditional guarantee of payment from another bank opening the letter of credit on behalf of the importer. It may also be possible to receive the additional guarantee of another bank known as “confirmation”

Following are the various types of Letters of Credit, each is dependent on the method of settlement:

• Sight Draft is the most commonly used Letter of Credit as it provides payment to the beneficiary immediately after presenting all stipulated documents.

• Deferred payment is when the seller receives payment at a later date. The buyer gains possession of the stipulated documents (and thereby the goods and services) before the amount is debited from his/her account

• Red clause is when the seller obtains an advance payment for an agreed amount to finance the manufacturing or purchasing of goods that are going to be shipped under the Letter of Credit.

• Revolving Credit is when the seller receives the payment in fixed installments for goods dispatched at specified intervals.

• Standby is used as a form of a back-up guarantee

Trade Bank of Iraq Trade Team provide prompt and professional advice on the structure and type of Letter of Credit your business requires. We also ensure that Letters of Credit are processed quickly, and ensuring settlement without delay.

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