What is L/C financing?
A letter of credit (L/C) is an internationally recognised payment and hedging instrument. It is an integral part of the global trade finance scene. An L/C represents a bank's abstract obligation to pay the exporter, named in the L/C as the beneficiary, upon presentation of the conforming documents. The L/C also serves as a guarantee for the importer: the exporter only receives payment after proving they have met their obligations (for example, machine delivery).
Financing by deferred payment
According to this type of L/C, the exporter does not receive payment immediately upon delivery, but instead at a later period specified in the L/C. In this case, the L/C serves as a financing tool for short-term periods (usually between 30 and 360 days).
L/C post-financing
L/C post-financing is a financial instrument whereby the bank in the exporter’s country issues a mid-term loan (approx. up to two years) to the importer’s bank, which opened the L/C. You benefit from later payment, whereas Plasser & Theurer receives the amount of the supply contract upon presentation of the L/C conforming documents. Depending on the customer’s creditworthiness and that country’s credit rating, an additional guarantee may be necessary; it may take the form of a bank or an ECA guarantee.
Costs of L/C financing
- Deferred payment: L/C fees with the issuing bank and the financing bank from when it is opened until payment
- Post-financing: L/C fees with the issuing bank and the financing bank from when the L/C is opened until delivery plus interest until payment
- If applicable, costs for an additional guarantee (a bank or ECA guarantee)
Your benefits
- Simplified process with short lead times
- Common practice widely used by international banks
- Our seasoned specialists provide support and guidance during the entire financing process
Financing of spare parts contracts
Our customers can use either a deferred payment L/C or L/C post-financing to finance spare parts contracts. Compared to machine contracts, spare parts contracts are often characterised by smaller volumes or shorter financing periods. L/C financing is easy to intiate and an interesting solution for buying and financing spare parts.
