Commercial Letters

What is a Commercial Letter of Credit?
A Commercial Letter of Credit is a common international payment method for the movement of goods and services. Essentially, it is a guarantee from the importer's bank that the exporter will be paid after the merchandise is shipped and the complying documentation has been submitted to the bank.

Click here for Export Letter of Credit Opening Instructions.
Click here for instructions on how to complete Export Letter of Credit Opening Instructions.
Click here for an Import Letter of Credit Application and Agreement.
(The links above require Adobe Acrobat Reader.)

Commercial Letters of Credit are often used for first-time sales, especially those involving large dollar amounts. They may also be appropriate for sales involving high-risk countries or sales of customized products.

How Does a Commercial Letter of Credit Work?
At the time the sale is negotiated, the exporter must inform the importer that payment should be made via an acceptable, irrevocable Letter of Credit. The exporter will typically provide the importer with detailed instructions for the issuance of the Letter of Credit. Upon receipt of these instructions, the importer will request a Letter of Credit be issued by his or her bank. The Letter is then sent to the exporter's bank. Upon receipt of the authenticated Letter of Credit, the exporter ships the merchandise and presents the required documentation to their bank for examination. If the documents comply with the Letter of Credit, payment is made by the importer's bank. If the required documentation does not comply, however, payment is not guaranteed by the issuing bank and the buyer may be approached for his or her approval.

Regardless of whether you are the exporter or the importer, Associated Bank will assist you with the issuance, as well as the subsequent examination, of Letters of Credit.

Balancing Risk Between Seller and Buyer
Whether you are an exporter concerned about receiving prompt payment or an importer concerned about receiving the proper goods in a timely manner, you may want to consider a Commercial Letter of Credit. This instrument evenly balances the risks of the seller and buyer in international transactions.

If you have any questions, please feel free to contact the International Banking Department at 1-800-230-5506 (Mon-Fri 8:30am - 5:00pm CST).

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