About Our Letters of Credit

The ability to secure a letter of credit can mean the difference between obtaining new business and having to let opportunities pass you by.

At Top Billion Finance, we offer two types of letters of credit: commercial (also known as documentary) and standby. We are usually able to offer unsecured letters of credit, which means you do not have to tie up your cash or other collateral to get a letter of credit issued.

Commercial Letters of Credit

Balancing the Competing Interests of Buyer and Seller

A commercial letter of credit is one of the oldest and most standard forms of payment for transactions in international trade. Foreign exporters that deal with unfamiliar companies thousands of miles away are naturally uncomfortable investing money to produce goods and ship them without any assurance of payment. Without a letter of credit, exporters generally ask for substantial deposits or other payment guarantees. Letters of credit allow buyers to avoid these undesirable alternatives.

Likewise, importers dealing with foreign suppliers don’t want to pay upfront for goods that may not correspond to purchase order specifications or may arrive late, if ever. Naturally, buyers would prefer to postpone payment until they receive the goods as expected. Letters of credit can prevent buyers from losing deposits when the sellers’ performance is deficient in any way. Without the letter of credit, buyers are left to fend for themselves to recover their deposits if goods are not produced according to spec.

For both buyers and sellers in a given transaction, letters of credit represent a reasonable compromise that protects both sides’ interests by assuring exporters that they will get paid once they produce and ship the goods according to certain documentary requirements that in turn protect importers’ interests. This is akin to an escrow arrangement, ensuring exporters that the goods won’t be released until they get paid and providing buyers with a guarantee that they will get the goods if the exporter is paid.

Remember that Express offers unsecured letters of credit, something most other financiers do not. Unsecured means you do not have to tie up valuable collateral to open a letter of credit.

Standby Letters of Credit

Standby letters of credit are often used to provide security for an obligation, such as a lease or other long-term contract. Landlords may require a deposit or a standby letter of credit that guarantees payment from the issuing bank if a tenant falls in arrears. Often, large contracts may require at least one of the parties to have a standby letter of credit in place for the transaction to move forward. Basically, a standby letter of credit guarantees the beneficiary that it will be paid from a creditworthy bank if it’s unable to get paid by its counterparty in a transaction.

Express provides standby letters of credit, allowing transactions to happen that otherwise might be considered too risky by the receiving entity.