Letter of Credit

Letter of Credit

Documentary letters of credit are undertakings made by a bank, either at the request of an applicant or on its own behalf, to pay a specified amount in an agreed currency to a beneficiary, provided that the beneficiary presents the required documents within a time limit and complied with definite terms and conditions. The beneficiary must fulfill his obligations comply with the terms and conditions of the contract concluded between the applicant and the beneficiary.
Generally Usage of this kind of instrument of payment has more advantages for both parts of activists in export and import business. The most outstanding benefits for exporters are the security of knowing that their goods will be paid for in full, on time and in the correct currency.
On the other side for the Importers, meanwhile, it prepares the confident that they will actually receive the goods or services they have ordered. Flexibility and probability of being adopted with latest changes and ongoing issues are other ones in this matter.         
 Bank Pasargad, in compliance with the Central Bank of the Islamic Republic of Iran´s FOREX Regulations, is prepared to handle the all kind of credits. In this sight of view the L/Cs based on the mechanism of payment are divided in four groups as follows:


/-Sight Payment L/Cs

The beneficiary receives the fund upon presentation of the documents complied with L/C terms and conditions to the Issuing Bank and/or Confirming Bank (if any). In this case there is a gradually procedure which ends to processing of documents against payment. For the banks it is given a maximum of five banking days following the date of presentation of the documents. The most important element in this means of payment is ‘complying presentation’ which means the presented documents must be fully complied with the terms and conditions stipulated and designated in letter of credit itself. Thus the Issuing Bank and/or Confirming Bank (if any) are undertaken to pay the amount of documents immediately in favor of beneficiary of letter of credit within five days after fully complying presentation. In some cases the aforesaid period of time will be deferred because the nominated bank may have to reimburse itself through other intermediary banks.  


/-Deferred Payment L/Cs

A Deferred Payment letter of credit is payable after a fixed number of days agreed before between applicant and the beneficiary of credit usually after shipment  or complying presentation of documents designated in letter of credit. In this way of payment, the Issuing Bank and/or Confirming Bank(if any) undertake to pay the amount of documents in favor of beneficiary (due date). The business and credit line of applicant nearby Issuing Bank plays an important role in issuance of such kind of L/Cs.Deferred payments are possible to be issued under both confirmed and unconfirmed ones.


/- Acceptance L/Cs

It is a form of deferred payment letter of credit by which the beneficiary presents the required documents along with a draft to the Issuing Bank, Confirming Bank (if any) and receives the acceptance of payment of documents amount on due date. Along with the required documents, the beneficiary presents a draft to the bank and asks for its written acceptance (avalised) on back said draft. By this acceptance the Accepting Bank undertakes to pay the mentioned amount on draft on due date. This kind of L/Cs provides for beneficiary the ability of retaking the possession of draft by discounting it on the open market.

Note: such acceptance credits or deferred payment L/Cs are some kind of financing instruments for the Importer. During the deferred payment period, the Importer can often sell the goods and later on to pay the amount on due date under the LC.


/-Negotiable L/Cs

This is another form of letter of credit by which the beneficiary presents the required documents in compliance with terms and conditions of letter of credit (compliance presentation) to the Nominated Bank and asks for negation. In this way the beneficiary receives the amount of documents from Nominated Bank immediately minus a discount charged by the negotiating bank and the latter bank refer to the Issuing Bank and/or Confirming Bank (if any) and claims the amount of documents accordingly.
In fact, frorm one side the beneficiary profits the advantage of advance payment and on the other side  the Nominated Bank purchases the documents (draft) from beneficiary and benefits for the less payment to beneficiary as discount.  
According to Art.2 of UCP 600 presenting a draft alongside with documents is not necessary.

Bank Pasargad branches throughout the country are ready to accept applications for issuance of documentary letters of credit. All credits are handled according to the latest version of the UCP.