Documentary operations enhance security of international transactions

Documentary collection is a good solution for conducting trade transactions and effecting transaction-related payments. Documentary collection works well when a long-term cooperation between the parties to the agreement is based on a spirit of trust but the trade partners are not yet prepared to trade without any security.

Documentary Collection is a payment mechanism whereby money is received, within specified timeframe and through Bank’s intermediation, from the buyer against presentation of financial and/or shipping documents.  Therefore, Documentary Collection is a method that is more secure than an ordinary bank payment, provides the seller with sufficient payment security and ensures that the seller receives payment for goods or services:

• the seller is guaranteed that the buyer will receive the documents only after the buyer has paid for the goods;
• the buyer is not required to make an advance payment; the payment is made against presentation of the shipping documents showing that the goods have been delivered according to the contract/agreement.

In international trade, Documentary Credit is the most secure method of payment used both by importers and exporters. Documentary Credit is basically a guarantee for the both counterparties (the importer and the exporter) as it guarantees payment for goods or services. The payment is guaranteed upon presentation of relevant shipping documents serving as proof of the delivery of the goods. The payment is guaranteed only if all of the requirements of the Documentary Credit are met:

• the payment is guaranteed to the seller upon presentation of compliant documents (documents that comply with the terms and conditions stated in the Documentary Credit) evidencing that the contracted goods have been delivered or the contracted services have been provided;
• the buyer can be sure that no payment will be made until the seller delivers goods or provides services according to the terms and conditions stated in the Documentary Credit. 

Documentary Credit is a contractual arrangement which is completely distinct and separate from the sales or other contracts on which it may be based. Both the importer and the exporter should differentiate transactions, which involve Documentary Credit, from other sales transactions. Documentary Credit explicitly outlines Bank’s obligations. Being involved in Documentary Credit, Bank deals solely in the documents representing the goods (services) covered by the underlying commercial contract and not in the goods or services themselves.

Documentary Credits are subject to the Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No 600 (“UCP”) or 1993 Revision, ICC Publication No 500 (UCP 500).

Letters of credit are among the most secure methods of payment and are respected internationally. 

Guarantee is an irrevocable commitment delivered by Bank by which Bank undertakes to pay a defined amount of money, as specified in the Guarantee, in favour of the beneficiary (the third party in whose favour the Guarantee is issued) upon the beneficiary’s request whenever the principal defaults on his obligations set out in the Guarantee.

There are several different types of Guarantees issued by Baltic International Bank:

• Advance Payment Guarantee guarantees that the buyer’s advance payment as specified in the agreement will be refunded to the buyer if the seller fails to deliver the contracted goods or provide the contracted service to the buyer.
• Bid Bond (or Tender Guarantee) guarantees that the tender’s organisers will be indemnified for expenses incurred if the bidder withdraws its offer or refuses to accept the order. Bid Bond is used in international tenders.
• Performance Bond guarantees that a specified amount of money will be paid as compensation to the buyer if the delivery of goods or the provision of service fails to comply with the provisions of the relevant contract/agreement. Performance Guarantee is used to enhance trade relationship between the buyer and the seller. 
• Payment Guarantee guarantees to the seller that the buyer will honour all of the payment obligations arising from the relevant contract/agreement.
• Collateral Guarantee
• Customs Guarantee
• Guarantee for Warranty Obligations
• Bank can also issue other types of Guarantees, depending on customer’s specific needs and provisions of the contracts/agreements.

Bank issues Guarantees in accordance with the applicable laws of the Republic of Latvia and generally accepted international rules and usages of guarantees.