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ABN AMRO

Letter of Credit

Doing business internationally with more security

Exporting and importing with more security

  • The importer’s bank guarantees payment
  • Strengthens your negotiating position
  • Extra security with a confirmed L/C

A letter of credit gives extra security that you will be paid or that the goods will be shipped. The importer’s bank is obliged to pay as soon as the exporter complies with the terms of the L/C.

Want to apply for a Letter of Credit? Contact the Trade Service Desk on +31 (0)10 402 5444 (local rates apply). Or send an email to tradeops@nl.abnamro.com.

Letter of Credit features

This is a Letter of Credit (L/C)

An L/C is also referred to as 'documentary credit'. This page will go into the specifics of an L/C. An L/C is a documentary payment instrument.

With an L/C, the importer’s bank undertakes to pay a certain amount once the exporter has complied with the terms of the L/C. This way, for the exporter the default risk is shifted from the importer to the importer's bank.

If the terms are met, the importer’s bank pays out under the L/C and releases the documents to the importer.

Main parties involved
  • Applicant: the importer and instructing party of the L/C 
  • Beneficiary: the exporter to whom the L/C is advised by the advising bank that an L/C is available 
  • Issuing bank: the bank issuing the L/C on the importer’s instruction 
  • Advising bank: the bank that opened the L/C can engage an advising bank to send the L/C to the exporter, in effect 'advising' (i.e. notifying) them.

There are often also other parties involved in an L/C. Find out more by reading the frequently asked questions on this page.

Here’s how it works

Let’s say that one of the terms of a trade contract between an exporter and importer is that payment is to be made through an L/C. The parties have also agreed terms that have to be met for payment to be released. 

The importer orders the issuing bank to open an L/C in favour of the exporter. Next, the issuing bank sends it to the advising bank. The advising bank checks whether the L/C has really been issued by the issuing bank. 

Once the exporter has received the terms of the L/C and everything is as agreed in the trade contract, the exporter can proceed to supply the goods and/or provide the services as agreed with the importer. We will from here on continue the explanation based on the supply of goods. 

The next step sees the exporter create and collect the required trade documents and send them to the advising bank, generally after the goods have shipped. The advising bank checks the trade documents and forwards them to the issuing bank. 

After the issuing bank has confirmed that the documents comply with the terms of the L/C, the importer will receive the documents in exchange for immediate or deferred payment. Under these terms, the exporter is subsequently paid the amount due by the advising bank. 

Watch the video below for further explanation of the steps.

Good to know

An L/C offers both you and your trade partner more security in doing business. The importer’s bank guarantees payment, which reduces the exporter’s risk exposure. And the importer gets the assurance that they will receive the right documents.

Important

The use of an L/C is governed by international regulations published by the International Chamber of Commerce (ICC). These rules are laid down in the Uniform Customs and Practice for Documentary Credits (UCP 600), a copy of which can be ordered from ICC.

There are different types of L/C. See the frequently asked questions on this page for the full list.

The basis of doing business, internationally or domestically, is trust. An L/C provides more security, but it does not exclude all the risks. It is important, therefore, that you know your trade partner well enough and trust them sufficiently before doing business with them.

With a letter of credit, there is a chance of trade documents going missing in the post (‘lost in transit risk’). ABN AMRO cannot be held liable for this risk, except if ABN AMRO made a demonstrable mistake when sending the documents.

When sending trade documents to ABN AMRO, please give clear delivery instructions to your postal carrier. Make sure your documents are physically delivered in at the relevant ABN AMRO branch and not at a service point, when the ABN AMRO branch is closed for example. ABN AMRO will not collect the documents from a service point and does not accept any responsibility or liability for documents dropped off at a service point. 

A bill of exchange is an unconditional, written payment order, payable on a future date or immediately. See the frequently asked questions for details.

Fees

We charge a fee for an L/C. Take a look at our overview of fees and charges .

Advice

Not sure whether an L/C is the best solution for you?

Please contact our advisors directly by calling +31 (0)10 402 5444 (local rates apply). We would be happy to help you.

Letter of Credit features

This is a Letter of Credit (L/C)

An L/C is also referred to as 'documentary credit'. This page will go into the specifics of an L/C. An L/C is a documentary payment instrument.

With an L/C, the importer’s bank undertakes to pay a certain amount once the exporter has complied with the terms of the L/C. This way, for the exporter the default risk is shifted from the importer to the importer's bank.

If the terms are met, the importer’s bank pays out under the L/C and releases the documents to the importer.

Main parties involved

  • Applicant: the importer and instructing party of the L/C 
  • Beneficiary: the exporter to whom the L/C is advised by the advising bank that an L/C is available 
  • Issuing bank: the bank issuing the L/C on the importer’s instruction 
  • Advising bank: the bank that opened the L/C can engage an advising bank to send the L/C to the exporter, in effect 'advising' (i.e. notifying) them.

There are often also other parties involved in an L/C. Find out more by reading the frequently asked questions on this page.

Here’s how it works

Let’s say that one of the terms of a trade contract between an exporter and importer is that payment is to be made through an L/C. The parties have also agreed terms that have to be met for payment to be released. 

The importer orders the issuing bank to open an L/C in favour of the exporter. Next, the issuing bank sends it to the advising bank. The advising bank checks whether the L/C has really been issued by the issuing bank. 

Once the exporter has received the terms of the L/C and everything is as agreed in the trade contract, the exporter can proceed to supply the goods and/or provide the services as agreed with the importer. We will from here on continue the explanation based on the supply of goods. 

The next step sees the exporter create and collect the required trade documents and send them to the advising bank, generally after the goods have shipped. The advising bank checks the trade documents and forwards them to the issuing bank. 

After the issuing bank has confirmed that the documents comply with the terms of the L/C, the importer will receive the documents in exchange for immediate or deferred payment. Under these terms, the exporter is subsequently paid the amount due by the advising bank. 

Watch the video below for further explanation of the steps.

Good to know

An L/C offers both you and your trade partner more security in doing business. The importer’s bank guarantees payment, which reduces the exporter’s risk exposure. And the importer gets the assurance that they will receive the right documents.

Important

The use of an L/C is governed by international regulations published by the International Chamber of Commerce (ICC). These rules are laid down in the Uniform Customs and Practice for Documentary Credits (UCP 600), a copy of which can be ordered from ICC.

There are different types of L/C. See the frequently asked questions on this page for the full list.

The basis of doing business, internationally or domestically, is trust. An L/C provides more security, but it does not exclude all the risks. It is important, therefore, that you know your trade partner well enough and trust them sufficiently before doing business with them.

With a letter of credit, there is a chance of trade documents going missing in the post (‘lost in transit risk’). ABN AMRO cannot be held liable for this risk, except if ABN AMRO made a demonstrable mistake when sending the documents.

When sending trade documents to ABN AMRO, please give clear delivery instructions to your postal carrier. Make sure your documents are physically delivered in at the relevant ABN AMRO branch and not at a service point, when the ABN AMRO branch is closed for example. ABN AMRO will not collect the documents from a service point and does not accept any responsibility or liability for documents dropped off at a service point. 

A bill of exchange is an unconditional, written payment order, payable on a future date or immediately. See the frequently asked questions for details.

Fees

We charge a fee for an L/C. Take a look at our overview of fees and charges .

Advice

Not sure whether an L/C is the best solution for you?

Please contact our advisors directly by calling +31 (0)10 402 5444 (local rates apply). We would be happy to help you.

How a Letter of Credit works

Watch the video with a brief explanation of how an L/C works.

If you supply goods you are the exporter

You agree beforehand with the importer what documents will be required under the L/C and what other terms to include. Next, the importer instructs their bank to open the L/C and send it to ABN AMRO (advising bank). ABN AMRO a.o. authenticates the L/C and checks it against international laws and regulations. If everything is in order, ABN AMRO will forward the L/C to you. In banking jargon, forwarding the L/C to you is referred to as ‘advising’ you. Keep reading to find out how an L/C works and what risks to bear in mind.

An L/C offers you, as an exporter, more security of payment because the importer’s bank (the issuing bank) undertakes to pay a certain amount once you comply with the terms of the L/C. This way, the exporter’s payment risk is shifted from the importer to the importer’s bank.

Looking for even more security?

While an L/C gives you, as the exporter, greater security of payment, you are still exposed to the risk involved in dealing with a bank in another country. You can protect yourself against this risk by having ABN AMRO confirm the L/C. Confirmation means that ABN AMRO takes over the payment obligation from the importer’s bank, i.e. the issuing bank. If you comply with all the terms of the L/C, you will then be protected against the credit and country risk attached to the importer’s bank. This is on the condition that ABN AMRO is willing to take on this risk. 

ABN AMRO charges a fee for confirmation. Ask our advisers about the options.

Risks with an export L/C

The first risk that arises for the exporter is in the negotiations with the importer. The L/C is drawn up based on the terms the parties have agreed in the trade contract. It will generally include the following elements:

  • a clear description of the goods and quantity/prices 
  • Latest date of shipment, L/C expiry date, L/C availability, and period of presentation documents  
  • delivery terms (Incoterms) 
  • terms agreed on partial shipment and transshipment 
  • terms agreed on payment of banking fees incurred 
  • terms agreed on documents to be submitted.

Tip: prevention is better than cure. To streamline the above process of agreeing terms, we advise you to include an appendix to the trade contract in which you, as the exporter, stipulate your requirements for the contents of the L/C. We refer to this as the ‘financial paragraph’. Please contact one of our advisers for more information.

Carefully check the contents of the L/C you have received. If you have doubts about the interpretation of certain wording in an L/C, please contact our advisers. If there is anything in an L/C that you do not agree with, contact the importer immediately to ask them to amend the provisions in question through the issuing bank. Only proceed to purchase/produce and/or supply if you fully accept the contents of the L/C.

After you have gathered all the required documents and submitted them to us, they will be checked whether they comply with the terms of the L/C and forwarded to the issuing bank.

After the issuing bank has also confirmed that the documents comply with the terms of the L/C, the importer will receive the documents in exchange for immediate or deferred payment. Under these terms, payments will be affected to you via ABN AMRO.

Any irregularities in the documents may be reason for the importer and/or the issuing bank to withhold payment under the L/C. In order to reduce the risk of this happening, you can ask us to conduct a pre-check of the documents. This is subject to a fee. For more information about fees, see our overview. Banks check documents, not goods.

It is important to bear in mind that banks deal only with the trade documents and do not look at the associated goods. 

Not sure whether an export L/C is a good option for you in your situation? Use the help feature or call our Trade Service Desk on +31 (0)10 402 5444 (local rates apply).

If you purchase, you are the importer

You agree beforehand with the exporter what documents will be required under the L/C and what other terms to include. Next, you instruct ABN AMRO to open the L/C. ABN AMRO opens the L/C and sends it to the advising bank. The advising bank subsequently authenticates the L/C and advises the L/C to the exporter.

As soon as the goods have shipped, the exporter creates and collects the required trade documents and sends them to the advising bank. The advising bank checks the documents and forwards them to ABN AMRO. ABN AMRO subsequently verifies that the documents comply with the terms of the L/C. If ABN AMRO observes any discrepancies, ABN AMRO will contact you.

Benefits of an import L/C

An import L/C gives you more security of a timely and correct delivery. You will not be required to pay until the exporter has shipped the goods and the documents comply with the terms of the L/C. In addition, the L/C lets you give the exporter payment security, which improves your negotiating position.

Risks with an import L/C

The basis of doing business internationally is trust; make sure, that you know the exporter well enough and trust them sufficiently.

Banks check documents, not goods.

It is important to bear in mind that banks deal only with the trade documents and do not look at the associated goods. Once ABN AMRO has checked the documents and concluded that they comply with the terms of the L/C, ABN AMRO will have to pay under the L/C. This is because ABN AMRO has an  irrevocable undertaking to pay against submission of L/C-compliant documents.

Make sure there are sufficient funds available

When instructing us to open an L/C, you need to have sufficient funds available in your account or credit facility. When opening an L/C, ABN AMRO, on your instruction, irrevocably undertakes to pay a certain amount when all the terms of the L/C are met. ABN AMRO will, therefore, block funds in your account or credit facility equal to the amount of the L/C. 

If you have any questions about this, get in touch with your contact at ABN AMRO. If you are not sure whether an import L/C is a good option for you in your situation, please call our Trade Service Desk on +31 (0)10 402 5444 (local rates apply).

Paper and pen

Amending a Letter of Credit

Contact our Trade Service Desk on +31 (0)10 402 5444.

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Manage your trade finance transactions online

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FAQ

Contact the Trade Service Desk on +31 (0)10 402 5444 (local rates apply). Or send an email to tradeops@nl.abnamro.com.

Letters of credit are intended for businesses who want to reduce the payment risk and delivery risk. It is a suitable form of protection in: 

  • international transactions with new business partners 
  • high-value transactions 
  • sending shipments to countries that are less stable economically

Send your trade documents by courier or registered mail to the following address: 

ABN AMRO Bank N.V.
Trade & Guarantees
Coolsingel 119
3012 AG Rotterdam
The Netherlands

All other correspondence should be sent to the following address:

ABN AMRO Bank N.V.
Trade & Guarantees
Postbus 949
3000 DD Rotterdam
The Netherlands

  • Commercial L/C (documentary)
    The documentary L/C is the commonly used type of L/C and described under 'Features'. 
  • Standby L/C
    A standby L/C is like a bank guarantee (provision of security). For details of the standby L/C, see the question ‘What is a standby L/C?’
  • Transferable L/C
    This type of L/C gives the beneficiary the option to transfer the L/C to a second beneficiary in full or in part. Such a transfer must largely conform to the terms of the original L/C. Transferring an L/C is subject to various terms. ABN AMRO will assess on a case-by-case basis whether transfer is possible. If you want to transfer an L/C contact our advisers. 
  • Back-to-back L/C
    With a back-to-back L/C, there are two L/Cs that are jointly used to finance a (trade) transaction. This type of L/C is often used when there is an intermediary/broker between the exporter and importer. It is important to know that the intermediary/broker must have sufficient working capital available to cover the L/C. 
For more information contact our advisers.

You can get even more security by having ABN AMRO confirm the L/C. Confirmation means that ABN AMRO takes over the payment obligation from the importer’s bank, i.e. the issuing bank. If you comply with all the terms of the L/C, you will then be protected against the credit and country risk attached to the importer’s bank.

This is on the condition that ABN AMRO is willing to take on this risk. We charge a fee for confirmation. Ask our advisers about the options.

You have agreed with your customer that payment under the L/C will be made on a certain date in the future, such as 90 days after the date on the transport document. If you decide you want to receive the money sooner than that, you can ask us to discount the L/C. This means that we will advance you the L/C payment, less our fee and discount interest.

If you want to find out more about this, call our Trade Service Desk on +31 (0)10 402 5444 (local rates apply).

A standby L/C is a lot like a bank guarantee. It is a form of security that is used only when the applicant claims that the beneficiary is in default.

What sets a standby L/C apart from a regular bank guarantee is that additional trade or other documents may be required when submitting a claim on the L/C. It may also be governed by different regulations. Standby L/Cs are very commonly used in the United States. 

To find out more, please contact our advisers.

You can track the status of your documents using the shipping number. One condition for document tracking is that the documents must have been picked up or received registered by DHL Nederland. Follow the instructions below to track the status of your documents.

On the DHL website enter the following details: 

  • Shipment Reference. DHL uses ABN AMRO’s reference number as the ‘Shipment Reference.’ Example: reference number NLHX1234567E001 or NLHM1234567M003 (i.e. with further additions such as E001 or M003 after our reference number). It is important that you enter all the capital letters indicated. 
  • Date range (from): select the date when the documents were sent to ABN AMRO. 
  • Date range (to): this is the current date. 
  • You do not have to enter anything in the Account Number or Destination fields. 
If you have any questions about this procedure, please contact ABN AMRO Trade Operations on +31 (0)10 402 5444 (usual call charges apply).

See ‘Features’ for details of the main parties to a letter of credit. Besides these parties, the following parties are also often involved.

  • 1st advising bank: this is the bank that receives the L/C from the issuing bank and forwards it to a 2nd advising bank. The 1st advising bank may also be the bank confirming the L/C, meaning that it is also the confirming bank. 
  • Reimbursement bank: this is the bank where the cover for the payment of the L/C can be obtained from the bank that settles the documents. This bank will often also charge a fee for this service. 
  • Transferring bank: this is the bank that transfers the L/C.

See the documents below for more information about bills of exchange. 

Bill of exchange leaflet

Endorsing a bill of exchange means that it is used as a means of payment. The bill of exchange can be endorsed to another party by placing a signature and company stamp on the back. Bills of lading and insurance policies can also be endorsed in this manner.

If you and/or your trading partner want more security when doing business internationally, a Documentary Collection can be a good option. A Documentary Collection sees banks take on an intermediary role for delivery of trade documents and payment processing, but they do not guarantee payment. With a Letter of Credit, on the other hand, one of the banks involved does guarantee payment.

The importer’s bank undertakes to pay a certain amount once the exporter has complied with the terms of the Letter of Credit. 

Do you have questions, please call our Trade Service Desk on +31 (0)10 402 5444 (local rates apply).