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Accommodation letter of credit

This instrument is sent to a 3rd party. It is sent to the bank of a provider, or a seller of products, or services.

 

All L/Cs in principal, are irrevocable and comply with all the provisions of the Uniform Customs and Practice for Documentary Credits, ICC Publication No. 600. They are issued by international banks on behalf of certain customers (applicants) and are transmitted by SWIFT to their correspondent banks or direct to the beneficiary’s nominated advising bank.

 

In case of an Accommodation Letter of Credit , the instruments will include a controlling clause. The only way to remove the control clause is by providing 100% collateral to the issuer of the instrument.

 

An accommodation letter of credit is known as “accommodation”, “non-operative”, “non-negotiable” or “restricted” because one or more documents required to negotiate the L/C is originated by the L/C applicant and/or the issuing bank and therefore unavailable to the beneficiary. Issuance of this special document, for example, an inspection certificate issued by the applicant, is usually confirmed by an amendment to the L/C. Shipment cannot be made and negotiation/presentation of documents is prohibited until the certificate and/or amendment are issued. Such a certificate and/or amendment will only be issued when all the terms and conditions of the applicant have been met by the beneficiary and/or the end buyer and/or the party who requested for the L/C.

 

Such L/Cs can be useful for various purposes, usually of a bridging nature, such as to cover a short-term accommodation, as proof of capacity or as proof of an export order to quality for export financing schemes. They have also been known to be used in back-to-back transactions. Accomodation L/Cs cannot be negotiated, presented or cashed until such time as the L/C applicant has received the full 100% cover. This is usually over and above any amount already paid as handling charges and commissions, which are not refundable once the L/C is established.

 

The handling charges and commissions for the establishment of the L/C can vary depending on the amount, the nature of the underlying transaction and the standing of the issuing bank between 8% and 14%.

 

In order to proceed, we need a brief summary of the trade transaction or proposed project on the letterhead of the beneficiary and a duly completed Preliminary Application Form.

 

 

 

 

 

NOTICE: We are not involved in their uses at the beneficiary's end and we give no warranty that they can be used as described, and we are not responsible if the client cannot use the L/C after it is issued. Our responsibility ends once the L/C is issued. We work on a full-disclosure basis and it is important that our clients fully understand that such L/Cs cannot be negotiated, presented or cashed until such time as the L/C applicant has received the full 100% cover. This is over and above any amount already paid as handling charges and commissions which are not refundable once the L/C is established.

 

NOTICE: This website is for general information purposes only. It should not represent any sort of professional advice, or an offer to buy, or an offer to invest, or a recommendation to engage in leasing of financial instruments. This website does not provide professional financial advice of any sort. By reading this website, you confirm that you are a qualified investor. All information presented on this website is subject to change without notice. Any concept described here is subject to availability at time of contract. All terms and warnings of our Disclaimer apply to this page and the entire website.

 

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