Are you afraid of the risks associated with prepayment for a transaction? Do you want to be on the safe side as a first-time customer working with a new supplier? Take advantage of a letter of credit - one of the most reliable and profitable banking instruments used when concluding contracts.

The letter of credit form of payment is beneficial to both the seller and the buyer. It can be used with equal success not only in domestic Russian transactions, but also in foreign trade transactions. Today, settlement services in the form of documentary letters of credit are provided by most large Russian banks.

Letter of credit: what is it in simple terms?

In simple words, a letter of credit is a special account opened at a bank in which funds can be reserved when conducting transactions for the sale of goods or the provision of services (performing work). If both parties fully comply with the conditions specified in the contract, the bank pays the required amount to the account of the recipient (beneficiary).

Thus, the bank acts as a guarantor and assumes responsibility for making payments. The supplier is 100% sure that the product/service will be paid for, and the buyer knows that he will be able to pay for it on time and without debt.

Letter of credit form

It works according to the following scheme.

1. The parties enter into a contract that stipulates the terms of the letter of credit payment.
2. The buyer submits an application to his bank (issuer) to open a letter of credit account and deposits into it the amount necessary to cover the transaction (reserves funds).
3. After the successful opening of a letter of credit, the issuing bank notifies the seller's bank (advising bank) about this.
4. The advising bank notifies the seller about the opening of the letter of credit. The seller ships the goods and provides supporting documents to his bank.
5. After checking the documents, payment is transferred to the seller’s account by the issuing bank or advising bank (depending on the terms of the agreement).

Irrevocable letter of credit

One of the main and frequently used types of documentary payments. Unlike a revocable letter of credit, a confirmed or unconfirmed irrevocable letter of credit is not revoked or amended by either party (including the bank) without the prior consent of the seller/supplier. It is considered the most reliable form of letter of credit payments, as it completely frees the trade and monetary transaction from all possible risks, primarily financial.

If during the transaction the supplier and buyer come to a mutual agreement, the terms of the irrevocable letter of credit may be changed.

Letter of credit agreement

The agreement on a transaction providing for this form of payment stipulates and strictly records any information that can subsequently be used when carrying out a trade and monetary transaction and payment for it:

• names of the supplier and recipient,
• type of letter of credit used (irrevocable/revocable, covered/uncovered),
• the amount reserved on the account to pay for the transaction,
• the duration of the obligation,
• commission size,
• payment order,
• procedure in case of non-payment of debt under a letter of credit,
• rights and obligations of all parties.

Payment by letter of credit

Payments using letters of credit provide for the transfer of funds to the seller’s account only if all the conditions specified in the contract have been met. In particular, money is transferred to the seller’s account after the goods have been fully shipped and all required documents have been submitted to the bank. If the terms of the letter of credit agreement have been violated, the payer (buyer) has the right to refuse payment and return the goods to the supplier.

A nuance: a letter of credit account is opened by the buyer with his own money or with the help of bank credit funds (if he has the right to lend).

Opening a letter of credit

To open a letter of credit account, a written application in the appropriate form is submitted to the banking organization. The statement states:

• number of the agreement under which the letter of credit is opened,
• name and details of the supplier,
• type, validity period, monetary amount of the letter of credit,
• the way to implement it,
• list of shipped (provided) goods/services,
• name of the executing bank under the letter of credit obligation,
• a list of documents that will be used as the basis for payment of funds to the supplier.

Sravni.ru advice: use a letter of credit form of payment if you need to conduct secure trade and monetary transactions with new and “problematic” business partners.

Chapter 6. Settlements under the letter of credit

6.1. When making payments under a letter of credit, the bank acting on the order of the payer to open a letter of credit and in accordance with its instructions (hereinafter referred to as the issuing bank), undertakes to transfer funds to the recipient of the funds, subject to the presentation of documents provided for by the letter of credit and confirming the fulfillment of its conditions (hereinafter referred to as execution letter of credit), or grants authority to another bank (hereinafter referred to as the executing bank) to execute the letter of credit. The executing bank may be the issuing bank, the recipient bank, or another bank. The issuing bank has the right to open a letter of credit in its own name and at its own expense. In this case, the issuing bank is the payer.

6.2. This chapter does not regulate the procedure for executing a letter of credit through payment, acceptance or discounting of a bill of exchange.

6.3. The letter of credit is separate and independent from the main contract. Execution of the letter of credit is carried out on the basis of the submitted documents.

6.4. Transfer of a letter of credit, changes in the terms of a letter of credit, documents, statements, notifications, notifications and other exchange of information under a letter of credit can be carried out on paper and (or) electronically using communication means that allow reliably identifying the sender, including information systems, including distributed Information Systems. Features of the exchange of information under a letter of credit using information systems are provided for in paragraph 6.34 of these Regulations.

(see text in the previous edition)

6.5. Upon receipt of a letter of credit, changes in the terms of the letter of credit, documents, applications, notifications, notices and other information on the letter of credit, the bank carries out the appropriate procedures for accepting orders for execution provided for in Chapter 2 of these Regulations, taking into account the features provided for in paragraph 6.34 of these Regulations.

(see text in the previous edition)

6.6. The opening of a letter of credit is carried out by the issuing bank on the basis of the payer’s application for opening a letter of credit, drawn up in the manner established by the bank. The consent of the executing bank to execute the letter of credit does not prevent its execution by the issuing bank.

6.7. The details and form (on paper) of the letter of credit are established by the bank. The letter of credit must contain the following mandatory information:

number and date of the letter of credit;

letter of credit amount;

payer details;

details of the issuing bank;

details of the recipient of funds;

details of the executing bank;

type of letter of credit;

validity period of the letter of credit;

method of execution of the letter of credit;

list of documents that must be presented under the letter of credit and requirements for them;

(see text in the previous edition)

purpose of payment;

deadline for submitting documents;

the need for confirmation (if any);

procedure for paying bank commissions.

The letter of credit may contain other information.

6.8. Upon receipt from the issuing bank of a letter of credit with the authority to execute the letter of credit, the executing bank, in case of disagreement to accept the authority to execute the letter of credit, is obliged to notify the issuing bank about this no later than three business days from the date of receipt of the letter of credit.

6.9. The executing bank informs the terms of the letter of credit received from the issuing bank to the recipient of funds and sends the recipient of funds information about the address of the division of the executing bank to which documents under the letter of credit must be submitted. If such information is not sent to the recipient of funds, the place of presentation of documents under the letter of credit to the executing bank is considered to be the address of its head office. In accordance with the powers granted by the issuing bank, the nominated bank may engage another bank to communicate the terms of the letter of credit, including the recipient bank, which notifies the nominated bank of the date of communication of the terms of the letter of credit to the recipient of the funds. If it disagrees or is unable to communicate the terms of the letter of credit to the recipient of the funds, the bank notifies the executing bank about this no later than three working days from the date of receipt of the letter of credit.

(see text in the previous edition)

6.10. The transfer of funds to the executing bank as cover for a covered (deposited) letter of credit is carried out by a payment order from the issuing bank indicating information that allows the establishment of the letter of credit, including the date and number of the letter of credit.

6.11. At the request of the issuing bank, an irrevocable letter of credit may be confirmed by another bank (hereinafter referred to as the confirming bank). If it agrees to confirm the letter of credit, the other bank notifies the issuing bank of the date of confirmation of the letter of credit. If it does not agree to confirm the letter of credit, the other bank notifies the issuing bank of this no later than three working days from the date of receipt of the letter of credit from the issuing bank.

(see text in the previous edition)

6.12. In case of changes in the conditions or cancellation of the letter of credit, the payer submits an application to the issuing bank. According to the received application, the issuing bank sends to the recipient of funds, including through the executing bank, a notice of changes in the conditions or cancellation of the letter of credit.

(see text in the previous edition)

(see text in the previous edition)

6.14. When a letter of credit is received and doubts arise about the correctness of the letter of credit details, the executing bank has the right to send a request in any form to the issuing bank. The details of the letter of credit are clarified within the validity period of the letter of credit. In this case, the executing bank may pre-notify the recipient of funds or the bank of the recipient of funds about the opening of a letter of credit to the recipient of funds.

6.15. To execute a letter of credit, the recipient of funds submits to the executing bank the documents provided for by the terms of the letter of credit, during the validity period of the letter of credit and within the period for submitting documents provided for by the letter of credit. Documents can be submitted directly to the issuing bank. For a covered (deposited) letter of credit, the issuing bank may request confirmation from the executing bank that the documents were not submitted to the executing bank and were not paid by the executing bank, and has the right to demand that the executing bank return the amount of coverage based on a request confirming the submission of documents to the bank. the issuer, and in the case of a confirmed letter of credit - also the execution of the letter of credit by the issuing bank. In this case, the executing bank returns the coverage amount no later than the business day following the day of receipt of the request from the issuing bank.

(see text in the previous edition)

6.16. In cases provided for by the terms of the letter of credit, documents under the letter of credit may be submitted electronically, including using information systems.

(see text in the previous edition)

6.17. The bank (executing bank, issuing bank) checks the external appearance of the submitted documents and their details for compliance with the requirements stipulated by the terms of the letter of credit, as well as the absence of contradictions between the documents. Documents containing discrepancies with the terms of the letter of credit and (or) contradictions with other submitted documents are considered not to comply with the terms of the letter of credit.

The period for document verification should not exceed five working days following the day the documents were received. In case of failure to comply with the specified period, the bank has no right to refer to the non-compliance of the submitted documents with the terms of the letter of credit. When documents are submitted less than five working days before the expiration of the letter of credit, the executing bank has the right to verify the documents within a five-day period, while the letter of credit is not closed before the end of the specified period.

6.18. When it is established that the submitted documents comply with the terms of the letter of credit, the executing bank executes the letter of credit.

(see text in the previous edition)

6.20. Execution of a letter of credit by payment is carried out by transferring funds by payment order of the executing bank to the bank account of the recipient of funds or by crediting the corresponding amount to the bank account of the recipient of funds with the executing bank.

(see text in the previous edition)

(see text in the previous edition)

6.22. When executing a revocable letter of credit, the executing bank executes the letter of credit in full amount and on the current terms of the letter of credit, if, before submitting the documents, the recipient of the funds has not received from the issuing bank a notice of cancellation of the letter of credit or change in other conditions of the letter of credit, in terms of the amount of the letter of credit - upon receipt from the bank - the issuer of the notice of reduction in the amount of the letter of credit.

6.23. After execution of the letter of credit, the executing bank sends to the issuing bank a notice of execution of the letter of credit indicating the amount of execution and attaching the submitted documents no later than three business days after the day of execution of the letter of credit.

6.24. If it is established that the submitted documents do not conform on external grounds to the terms of the letter of credit (hereinafter referred to as documents with discrepancies), the executing bank has the right to refuse to execute the letter of credit by notifying the recipient of the funds and pointing out all the discrepancies that are the reason for the refusal. The executing bank has the right, at the request of the recipient of funds or subject to his notification, to independently request the issuing bank’s consent to accept documents with discrepancies. The executing bank has the right at any time, before receiving a response from the issuing bank and instructions from the recipient of the funds, to return documents with discrepancies to the recipient of the funds.

(see text in the previous edition)

6.25. Documents stipulated by the terms of the letter of credit may be resubmitted before its expiration within the period for submitting documents provided for by the terms of the letter of credit.

(see text in the previous edition)

6.26. Upon receipt of a request from the executing bank for consent to accept submitted documents with discrepancies, the issuing bank has the right to refuse to accept documents with discrepancies and to execute the letter of credit or to first request the payer about the possibility of accepting these documents.

If the payer gives the issuing bank consent to accept the submitted documents with discrepancies, the issuing bank has the right to give its consent to the executing bank to execute the letter of credit. If the payer refuses to accept documents with discrepancies, the issuing bank is obliged to notify the executing bank about this, indicating in the notification all discrepancies that are the reason for the refusal.

6.27. The notifications provided for in clause 6.24 of these Regulations are sent by the executing bank once for each submitted set of documents within the period established by clause 6.17 of these Regulations.

(see text in the previous edition)

6.28. If it is established that the submitted documents do not conform on external grounds to the terms of the letter of credit, the issuing bank has the right to contact the payer for his consent to accept the documents with discrepancies. In this case, the period established by paragraph 6.17 of these Regulations for checking documents does not change. The issuing bank has the right at any time before receiving the payer's response to return the documents to the recipient of the funds. If a discrepancy is established by external signs between documents accepted by the executing bank and the terms of the letter of credit, the issuing bank has the right to demand from the executing bank the return of amounts paid to the recipient of funds at the expense of the coverage transferred to the executing bank (under a covered (deposited) letter of credit), reimbursement of amounts written off from the correspondent account opened with the nominated bank, or refuse to reimburse the nominated bank for amounts paid to the recipient of funds (under an uncovered (guaranteed) letter of credit).

(see text in the previous edition)

6.29. Refunds under a letter of credit are carried out by a payment order from the executing bank indicating information that allows you to establish the letter of credit, including the date and number of the letter of credit.

6.30. Execution of a letter of credit may be carried out to a person who is not the recipient of funds (hereinafter referred to as execution of the letter of credit to a third party), if the possibility of such execution is provided for by the terms of the letter of credit and the executing bank has expressed its consent to execute the letter of credit to a third party.

Execution of a letter of credit to a third party is carried out on the basis of an application for execution of a letter of credit to a third party submitted by the recipient of funds.

The application for execution of a letter of credit to a third party indicates the amount of the letter of credit (part of it) to be executed by the third party, and may also stipulate the terms of the letter of credit, which can be changed downward:

unit price;

expiration date of the letter of credit;

deadline for submitting documents to the executing bank;

deadline for shipment of goods (performance of work, provision of services).

The amount of insurance coverage, expressed as a percentage (if provided for by the terms of the letter of credit), may be increased to ensure the amount of insurance coverage provided for by the terms of the letter of credit.

The application for execution of a letter of credit to a third party indicates which documents can be replaced when executing the letter of credit, and also indicates the parties paying the commission when executing the letter of credit to a third party.

The executing bank informs the third party to whom the letter of credit is executed, the terms of the letter of credit, taking into account the changes made upon the application for execution of the letter of credit to the third party.

If a third party refuses to execute a letter of credit in its favor by submitting a corresponding application, the executing bank notifies the recipient of the funds about this.

The third party to whom the letter of credit is executed submits to the executing bank the documents provided for by the terms of the letter of credit, taking into account the changes made at the request of the recipient of the funds.

The executing bank checks the submitted documents in accordance with the requirements of this chapter, after which, no later than the third business day following the day of establishing compliance (non-compliance) of the submitted documents with the terms of the letter of credit, notifies the recipient of funds about the submission of documents by a third party.

The recipient of funds has the right, during the period for submitting documents, to submit to the executing bank documents, the replacement of which is allowed in accordance with the application for execution of the letter of credit to a third party, to replace the documents of the third party to whom the letter of credit is executed.

The letter of credit is executed to a third party in the amount specified in the documents submitted by him, and to the recipient of funds - in the amount of the difference between the amount specified in the documents of the third party and the amount specified in the documents of the recipient of funds.

If the recipient of funds has not submitted documents to the executing bank for replacement within the period for submitting documents or the documents submitted by him contain discrepancies that were not in the documents submitted by a third party, the executing bank has the right to submit to the issuing bank the documents submitted by the third party or accept the documents provided by a third party (if the issuing bank is the executing bank).

6.31. Closing of a letter of credit in the executing bank is carried out on the grounds provided for by federal law. When closing a letter of credit, the executing bank sends a notification to the issuing bank indicating information that allows the establishment of the letter of credit being closed, as well as the basis for its closure.

6.32. When closing a covered (deposited) letter of credit, the return of unused funds to the issuing bank is carried out by a payment order from the executing bank on the day the letter of credit is closed. When returning the amount under a covered (deposited) letter of credit, the notification specified in clause 6.31 of these Regulations may not be sent.

(see text in the previous edition)

6.33. The issuing bank is obliged to credit the funds returned by the executing bank under the covered (deposited) letter of credit to the payer's bank account, from which the coverage amount was previously debited, no later than the business day following the day the funds were returned.

6.34. The exchange of information on a letter of credit, including the presentation of documents under a letter of credit, using information systems is carried out taking into account the following features.

6.34.1. Submission of documents under a letter of credit in electronic form can be carried out by sending them, providing access to them, as well as by providing the bank with a link to access the information system provided for by the terms of the letter of credit, containing documents in electronic form.

Notification and notification of participants in settlements under a letter of credit can be carried out through the exchange of documents in electronic form, providing access to documents in electronic form and other information on the letter of credit.

the ability to establish the contents of a document in electronic form and check it for compliance with the terms of the letter of credit;

when sending a document - the ability to identify the sender of the document in electronic form, and when providing access to the information system or a link to access the information system - the ability to establish the information system that contains the document in electronic form, and the availability of the information system documents during the verification period, used to submit documents in electronic form.

If the bank verifying the documents cannot access the information system due to access restrictions, including due to the provision of paid access, if such an access condition was not provided for by the terms of the letter of credit, the document is considered not presented.

6.34.4. The date and time of submission of documents in electronic form are determined by the time zone of the division of the nominated bank to which the documents under the letter of credit must be submitted, or, in the absence of such a division, by the time zone of the location of the nominated bank. The executing bank is obliged to record the time of receipt of the submitted documents in electronic form.

6.34.5. The recipient of funds is obliged to provide the executing bank with a notice of completion of the presentation of documents (hereinafter referred to as the notice of completion of presentation), unless another method of completing the presentation of documents is determined by the terms of the letter of credit.

Notification of completion of presentation may be submitted to the executing bank electronically, including using an information system, or on paper. The notice of completion of presentation must enable the credit to which the notice relates to be identified.

Unless otherwise provided by the terms of the letter of credit, documents in electronic form if the executing bank does not receive notification of completion of the presentation are not considered submitted.

6.34.6. If the submitted document in electronic form contains a link to data on the Internet, the executing bank checks the document in electronic form and the data available via the link.

6.34.7. If the terms of the letter of credit provide for the executing bank to contact the information system, the date of submission of the document under the letter of credit is the date of the first application of the executing bank to the information system, as a result of which the executing bank recorded the presence in such information system of a document in electronic form, provided for by the terms of the letter of credit, or the date on which the presentation of documents under a letter of credit is completed in accordance with the terms of the letter of credit.

The procedure, including frequency, for the executing bank to access the information system may be provided for by the terms of the letter of credit and (or) an agreement between the parties to settlements under the letter of credit.

The executing bank is obliged to record information about the presence in the information system of a document in electronic form provided for by the terms of the letter of credit, the date and time of each call to the information system, as well as the result of such a call.

6.34.8. If it is impossible to submit documents electronically before the deadline for their submission due to the unavailability of the information system, including access restrictions not provided for by the terms of the letter of credit, the recipient of funds within one business day from the date of expiration of the deadline for submitting documents notifies the executing bank about this, indicating the date and time of unavailability information system and attaching a notice to the information system about its unavailability, if the information system ensures the sending of such notices. The executing bank confirms receipt of the notification to the recipient of the funds. of this Regulation. Execution of the letter of credit, upon establishing the compliance of the submitted documents with the terms of the letter of credit, is carried out by the executing bank in accordance with this chapter.

An important point in a purchase and sale transaction is the method of payment between the parties. To avoid possible risks, the seller and buyer often use a letter of credit payment system. It does not matter whether the payment is made using your own funds or a mortgage.

What is a letter of credit in simple words

A letter of credit is another method of non-cash payment that can be used by the parties to a purchase and sale agreement, supply, etc. In simple words, a letter of credit is a financial instrument offered by banks associated with the control of payment between the seller and the buyer. The bank acts as a guarantor of an honest transaction and issues funds only subject to compliance with contractual obligations between the participants. During the transaction, the money is kept in a special bank account.

Accreditation scheme

Two credit organizations can take part in such transactions: the issuing bank and the executing bank. The issuing bank opens a letter of credit based on the application of its client and undertakes to make a transfer in favor of its counterparty under the agreement. For this purpose, an order is transmitted to the executing bank. Such an order is possible only after documentary confirmation of the fulfillment of all agreements on the transaction. The transfer occurs on the basis of an order from a Bank client to transfer funds to a third party. Advantages of the service:

1. Cashless payment. There is no need to carry a large amount with you, count it and check for authenticity.
2. The operation is safe. The parties do not risk anything. The seller is guaranteed the transfer of the full amount of funds after fulfilling the terms of the contract. For the buyer, this is an opportunity to purchase an apartment or other real estate and not lose money. Also, return the money in full if the terms are violated by the seller or the agreement is terminated.

For the seller, a documentary letter of credit is an additional guarantee on the part of the bank that funds will be received under the agreement as soon as it fulfills all the conditions. And the buyer is sure that the money will be transferred after providing the documents he named in the application.

Necessary actions to use the service

1. The parties to the transaction enter into an agreement, which spells out in detail all the conditions and circumstances of the fulfillment of obligations.
2. An agreement on settlement using a letter of credit is signed at the bank. Personal and passport details of both parties must be indicated. Conditions for payment of funds.
3. After signing the banking agreement, the buyer fills out an application for a letter of credit.
4. After checking the documents, the bank employee opens an account in the name of the buyer. It is fully credited with funds for real estate, goods, and services. Subsequently, they will be transferred to the correspondent’s account, bank card, or issued in cash.
5. The transfer to the seller will occur after the transaction is completed. He must submit to the bank documents confirming the registration of the purchase and sale agreement and the transfer of ownership.

The letter of credit agreement completely regulates the relations of the participants. It must contain all the necessary information to complete the transaction:

• buyer and seller data. For individuals - this is passport data, full name, residential address. With the participation of an organization, the name, TIN, address, and account details are indicated;
• guaranteed amount of funds placed in a bank account;
• period of fulfillment of obligations;
• the amount of bank commission and the cost of additional services;
• the procedure for transferring money after fulfilling the conditions and providing documents;
• procedure for dealing with unforeseen circumstances, non-payment of debt, etc.;
• rights and obligations of the parties to the transaction.

After signing the agreement, a special account is opened at the bank to reserve money. To open an account, the client writes an application with the obligatory indication of the following data:

• details of the purchase and sale agreement – ​​number, place and date of signing;
• details of the real estate seller, supplier of goods;
• type of account, amount placed on it and period of its validity;
• method of transferring funds;
• information about the acquired property, goods, work, etc.;
• details of the contractor's bank;
• list of documents required to execute payment in favor of the seller

Type of service

Due to different terms of the transaction or changes in circumstances, its participants may use different types and features of the letter of credit payment system:

1. An irrevocable letter of credit is a condition under which the obligation is canceled by the buyer only with the consent of the seller. It is recognized as the most reliable way to conduct a transaction. Termination of banking services is possible only with a bilateral refusal. When a service is revocable, the bank has the right to change the obligation or cancel it without the consent or notification of the recipient.
2. A deposited letter of credit is the right of the bank to write off the client’s own and credit funds at its disposal for the period of settlement. Otherwise, this service is called a covered letter of credit. When the executing bank is involved in the settlements, money can be transferred to its account for the entire duration of the agreement with the bank.
3. An obligation with a red clause is the right of the bank to transfer the authority to make payments to another credit institution.
4. An uncovered letter of credit is the ability of the executor's bank to write off money from the buyer's account or use it in another way. Such an obligation is considered guaranteed. The executing organization is given the right to write off finances from the issuer's correspondent account.
5. A confirmed commitment is a guarantee of receiving money from the bank in the amount stipulated in the agreement. Moreover, for the seller the fact of receipt of funds from the buyer does not matter. Usually occurs when lending.
6. A direct letter of credit is an opportunity to receive money without the participation of the buyer. After the transaction is completed, only the seller can contact the bank.
7. Revolver. Opens for an incomplete amount. As the work progresses, the buyer pays in installments. Such a commitment is convenient when purchasing goods on a schedule.
8. Spare. The seller receives an additional payment guarantee from the bank. Convenient when the buyer is unable or refuses to make a full payment.

Buying an apartment through a letter of credit

Such a transaction is in many ways similar to buying real estate through a safe deposit box. However, using a safe is an easier way with less control from the bank. When considering the topic of what a letter of credit is from a bank when buying an apartment, it is worth keeping in mind the purchase of an apartment on the primary or secondary market. In the first case, housing can be purchased in a house under construction. When settlements with the developer are carried out through a letter of credit, the buyer receives a guarantee of becoming the owner of an apartment in a completed building. The developer will be able to receive funds only after completion of construction and commissioning of the house.

The reliability of this payment method is related to the value of the bank's services. On average, when making a transaction you will have to pay:

• 0.2% of the cost of the apartment specified in the contract. The minimum payment is 1000 rubles.
• with the participation of other financial institutions, the commission will be 0.3% in the range from 1,500 to 10,000 rubles;
• 2000–5000 rubles for servicing the transaction;
• changing the terms of the contract in terms of terms and amount will cost from 1000 to 4500 rubles.

The service is provided to individuals. The application shall indicate:

• contract amount;
• type and term of the letter of credit;
• data on the parties to the settlement;
• purpose of payment;
• list of documents for transfer by the Bank.

In addition to the sale of an apartment, a financial liability can be used for transactions with other real estate (houses, land, parking spaces), expensive movable property (equipment, furniture or art). The service is convenient when paying for services: construction, repairs.

The letter of credit is issued in rubles. The period is set by the buyer and specified in the application. If a mortgage transaction takes place, then on average the period in banks is set at 120 days. Extension is allowed, but not more than 60 days.

An important stage is the control of documents and the issuance of money. In other words, the disclosure of a letter of credit is a fact of confirmation that the seller has fulfilled the terms of the agreement. The bank reviews and verifies the submitted documents within about a week. This bank service is included in the scope of the letter of credit and may be paid additionally. If the control results are positive, the credit institution opens the letter of credit. The former owner receives the right to collect money for the apartment. Usually they are transferred to his account.

Some banks may have restrictions and deadlines for receiving money. Thus, Sberbank charges 1% of the amount for cash withdrawal. If the transaction amount is more than 5 million rubles, the funds must be in the account for 1 month. If the seller takes the funds earlier, 10% will be deducted from him.

In case of an obligation with acceptance, the issuance of money is possible after the buyer confirms the fulfillment of its conditions. The buyer informs the bank in writing that all requirements of the agreement have been met. Credit institutions are responsible for violations of the settlement process. Therefore, it is beneficial for banks to accept only correctly executed documents. Worth taking into account:

• the bank is not responsible for establishing the compliance of the clauses of the main agreement between the parties with the letter of credit agreement;
• the bank does not actually control the execution of the main transaction (actual transfer of property, vacating the apartment by the seller, etc.).

When the obligation expires and the agreed documents are not received from the seller, the letter of credit is closed. The recipient of the money is notified of this by the bank without fail.

Operations on letter of credit transactions

Services for transactions with a letter of credit can be provided in different options, depending on the credit institution. Typically banks carry out the following operations:

So, the payment system for purchasing real estate under a letter of credit is a reliable guarantee of compliance with the terms of the agreement. Long processing times, payment of money and cost justify the risks that participants in transactions involving large amounts are exposed to.

The concept of settlements under a letter of credit.

In accordance with clause 1 of Article 867 of the Civil Code of the Russian Federation (hereinafter referred to as the Civil Code of the Russian Federation), when making payments under a letter of credit, a credit institution acting on behalf of the payer to open a letter of credit and in accordance with its instructions (issuing bank), undertakes to make payments to the recipient of funds or give authority to another credit institution (executing bank) to make payments to the recipient of funds (beneficiary).

The executing bank may be the issuer, the recipient of funds, or another.

Separate and independent from the main agreement (clause 4.1 part I of Bank of Russia Regulation No. 2-P dated October 3, 2002 “On non-cash payments in the Russian Federation” - hereinafter Regulation No. 2-P).

Scope of application of payments by letters of credit.

They are used only for civil obligations; for settlements of public obligations, this form of payment is not used.

In relation to civil legal relations, letters of credit can be used in settlements for any obligations the subject of which is goods (works, services). However, the traditional scope of its application is relations under a supply agreement.

Letters of credit can be used by both legal entities and individuals when making settlements with counterparties.

The Russian one allows, within the framework of settlements under a letter of credit, payment or accounting of a bill of exchange (clause 1 of Article 867 of the Civil Code of the Russian Federation).

Legal regulation of payments by letters of credit.

Payments by letters of credit are regulated by § 3 of Chapter 46 of the Civil Code of the Russian Federation and Chapter 4 of Part I of Regulation No. 2-P.

It should be taken into account that the Uniform Practices and Practices for Documentary Letters of Credit (International Chamber of Commerce Publication No. 500 as amended in 1993) are not applied in domestic settlements on the territory of the Russian Federation.

This is due to the fact that the Uniform Customs and Practices are not international treaties and, accordingly, do not have the force of legal norms. They also should not be considered on the territory of the Russian Federation as business customs, since they are international banking customs.

Therefore, they can be used in internal settlements only as contractual terms if there is an agreement on this between the payer and the recipient of funds. At the same time, the applied rules and customs must not contradict Russian legislation.

The basis for this approach is Article 421 of the Civil Code of the Russian Federation.

An example from judicial practice.

To pay for the products under the supply agreement, the joint-stock company opened a covered irrevocable letter of credit with the condition of payment without acceptance (meaning the acceptance of a person authorized by the payer - author's note).

The funds under the letter of credit have been paid to the supplier. However, the goods were not received from him.

Taking this into account, the joint-stock company filed a claim with the arbitration court against the executing bank for the recovery of funds unjustifiably paid under the letter of credit.

The court of first instance rejected the claim.

By the decision of the court of appeal, the decision of the court of first instance was canceled, the claims of the joint-stock company were satisfied.

At the same time, the appellate court indicated that the payment of funds under the letter of credit was made by the executing bank in the presence of contradictions and inaccuracies in the documents.

The cassation court overturned the decision of the appellate court, denying the joint-stock company's claim.

In this case, the court referred to Article 15 of the Uniform Customs and Practice for Documentary Credits, according to which banks do not bear any responsibility for the form, completeness, accuracy, authenticity, falsification or legal significance of any documents, as well as for general and (or) private conditions contained in documents or additionally included in them.

The Supreme Arbitration Court of the Russian Federation overturned the ruling of the cassation court, and upheld the ruling of the appellate court.

When considering the case, the Presidium of the Supreme Arbitration Court of the Russian Federation proceeded from the fact that, in accordance with clause 1 of Article 870 of the Civil Code of the Russian Federation, the recipient of the funds submits to the executing bank documents confirming the fulfillment of all the conditions of the letter of credit. If at least one of these conditions is violated, the letter of credit will not be executed.

Within the meaning of clause 1 of Article 871 of the Civil Code of the Russian Federation, the executing bank, evaluating the documents presented by the recipient of funds, must determine whether they comply with the terms of the letter of credit on formal (external) grounds.

In this case, the executing bank made payment under the letter of credit, despite the fact that the documents submitted by the recipient of the funds did not comply with the terms of the letter of credit.

In this regard, the issuing bank did not accept execution of the letter of credit and demanded a refund.

According to clause 1 of Article 872 of the Civil Code of the Russian Federation, the issuing bank is responsible for violation of the terms of the letter of credit to the payer, and the executing bank is responsible to the issuing bank, except for the cases provided for in this article.

In accordance with clause 3 of Article 872 of the Civil Code of the Russian Federation, in the event of an incorrect payment by the executing bank of funds under a covered or confirmed letter of credit due to a violation of the terms of the letter of credit, liability to the payer may be assigned to the executing bank.

Since in this case the incorrect payment of funds was made by the executing bank under a covered letter of credit, the Presidium of the Supreme Arbitration Court of the Russian Federation concluded that the appellate court justifiably recovered from this bank the amount paid unjustifiably.

The cassation court's reference to the Unified Rules and Customs for Documentary Letters of Credit was considered unfounded, since the said rules do not apply in internal settlements on the territory of the Russian Federation (see Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated May 31, 2005 No. 15479/04).

Opening of a letter of credit.

When making payments under a letter of credit, the payer submits to the issuing bank two copies of an application for opening a letter of credit, in which he instructs the issuing bank to open a letter of credit. The issuing bank develops the application form for opening a letter of credit independently. The application for opening a letter of credit shall indicate the details provided for payment documents, as well as the following information:

Name of the issuing bank;

Name of the bank - recipient of funds;

Name of the executing bank;

Type of letter of credit (revocable or irrevocable);

Payment terms of the letter of credit;

List and characteristics of documents submitted by the recipient of funds, and requirements for the execution of these documents;

Closing date of the letter of credit, period for submitting documents;

Name of goods (works, services), for payment for which a letter of credit is opened, term of shipment of goods (performance of work, provision of services), consignor, consignee, destination of the cargo.

Based on the application for opening a letter of credit, the issuing bank draws up a letter of credit on a form of a certain form (clauses 5.1 and 5.2, part I of Regulation No. 2-P.

The issuing bank informs the recipient of funds about the opening of a letter of credit and its conditions through the executing bank or through the recipient's bank with the consent of the latter.

Types of letters of credit.

Credit institutions can open the following types of letters of credit:

Covered (escrowed) and uncovered (guaranteed);

Revocable and irrevocable (can be confirmed). In this case, the letter of credit is revocable unless otherwise stated in its text (clause 3 of Article 868 of the Civil Code of the Russian Federation).

1. When opening a covered (deposited) letter of credit (paragraph 1, clause 2, Article 867 of the Civil Code of the Russian Federation), the issuing bank transfers the amount of the letter of credit (covering) at the expense of the payer’s funds or the loan provided to him at the disposal of the executing bank for the entire validity period of the letter of credit. This amount is deposited by the executing bank on a special balance account (see letter of the Bank of Russia dated November 4, 2002 No. 08-31-1/3922 “On the procedure for opening account No. 40901 “Letters of credit for payment”).

When opening an uncovered (guaranteed) letter of credit (paragraph 2 of clause 2 of Article 867 of the Civil Code of the Russian Federation), the issuing bank grants the executing bank the right to write off funds from the correspondent account of the issuing bank maintained by it within the amount of the letter of credit or indicates in the letter of credit another method of compensation to the executing bank to the bank the amounts paid under the letter of credit in accordance with its terms. Such methods may be, for example, granting the right to a third bank in which a correspondent account of the issuing bank is opened to write off funds under the letter of credit based on the request of the executing bank, as well as issuing a guarantee of payment of the issuing bank or a third bank in favor of the executing bank (see. letter of the Bank of Russia dated August 24, 2004 No. 36-3/1643).

The procedure for writing off funds from the correspondent account of the issuing bank under an uncovered (guaranteed) letter of credit, as well as the procedure for reimbursement of funds under an uncovered (guaranteed) letter of credit by the issuing bank to the executing bank is determined by an agreement between the banks. The procedure for reimbursement of funds under an uncovered (guaranteed) letter of credit by the payer to the issuing bank is determined in the agreement between the payer and the issuing bank.

2. A letter of credit is recognized as revocable if it can be changed or canceled by the issuing bank without prior notification to the recipient of the funds (clause 1 of Article 868 of the Civil Code of the Russian Federation). Revocation of a letter of credit does not create any obligations of the issuing bank to the recipient of funds. However, the executing bank is obliged to carry out payment or other transactions under a revocable letter of credit if, by the time they are completed, it has not received notification of a change in the conditions or cancellation of the letter of credit.

In the event of a change in the conditions or cancellation of a revocable letter of credit, the issuing bank is obliged to send a corresponding notice to the recipient of funds no later than the business day following the day the conditions were changed or the letter of credit was cancelled.

All orders to change the terms of a revocable letter of credit come from the payer, but they must be transmitted through the issuing bank, which notifies the executing bank, which, accordingly, notifies the recipient (recipient bank).

Irrevocable is a letter of credit that cannot be canceled without the consent of the recipient of funds (clause 1 of Article 869 of the Civil Code of the Russian Federation). The terms of an irrevocable letter of credit are considered changed or an irrevocable letter of credit is considered canceled from the moment the executing bank receives the consent of the recipient of the funds. Partial acceptance of changes to the terms of an irrevocable letter of credit by the recipient of funds is not permitted.

3. Based on clause 2 of Article 869 of the Civil Code of the Russian Federation, at the request of the issuing bank, an irrevocable letter of credit can be confirmed by the executing bank with the assumption of an obligation, additional to the obligation of the issuing bank, to make a payment to the recipient of funds upon presentation of documents that comply with the terms of the letter of credit ( confirmed letter of credit). The terms of a confirmed letter of credit are considered amended or the letter of credit is considered canceled from the moment the issuing bank receives the consent of the executing bank that confirmed the letter of credit and the recipient of the funds. A confirmed letter of credit cannot be amended or canceled without the consent of the nominated bank.

4. In addition, the use of divisible letters of credit (that is, when several letters of credit can be opened within the amount specified in the letter of credit) does not contradict Russian law.

It should be taken into account that current Russian legislation does not provide for divisible letters of credit. This concept is from international practice, in particular, the divisibility of letters of credit is mentioned in the Uniform Customs and Practice for Documentary Credits.

At the same time, the use of divisible letters of credit does not contradict Russian legislation if the parties have agreed on their use in the agreement. By agreement of the payer and the recipient, the criteria for the divisibility of the letter of credit must be determined.

An example from judicial practice.

A legal entity entered into an agreement for the supply of petroleum products, in which it was the buyer.

In pursuance of this agreement, an irrevocable covered direct divisible letter of credit was opened.

It was stipulated that the letter of credit would be opened:

for transportation costs - upon presentation of: 1) an agreement (copy) with the carrier (certified by the supplier’s seal); 2) invoice (original) of the supplier;

for loaded goods - upon presentation of: 1) railway invoices (copies), certified by the supplier’s seal; 2) copies of the cargo customs declaration, certified by the seal of the issuing customs office; 3) copies of the agreement and the corresponding annex; 4) invoice (original) of the supplier.

Due to the termination of the supply agreement and the closure of the letter of credit, the funds of the letter of credit were returned to the payer. It turned out that the executing bank paid part of the funds under the letter of credit to pay for the supplier’s transportation costs on the basis of the documents specified in the letter of credit.

In connection with the above, the legal entity filed a claim with the arbitration court against the executing bank for the recovery of damages in the amount paid under the letter of credit, since the executing bank violated the terms of the letter of credit.

By the decision of the arbitration court, upheld by the decision of the court of appeal, the claims were rejected. The cassation court left these decisions unchanged.

In fact, a dispute arose between the parties about how the condition of the disputed letter of credit on its divisibility should be interpreted: in relation to payment only for individual consignments of goods or in relation to separate payment for transport costs of the seller and the goods themselves.

In refusing to satisfy the claims, the arbitration courts proceeded from the fact that the requirements for the documents specified in the letter of credit were met by the recipient.

The plaintiff's arguments about the unfoundedness of the divisibility of the letter of credit for payment of transportation costs and the goods themselves were rejected.

With a literal interpretation of the terms of this letter of credit, taking into account the provisions of Art. 421 of the Civil Code of the Russian Federation, arbitration courts came to the conclusion that it provides for the possibility of its divisibility, both by the number of deliveries and by dividing the payment for each delivery into payment for transportation costs and the goods themselves.

The arbitration courts considered the terms of the agreement for the supply of petroleum products on the payment procedure and the terms of the letter of credit to comply with the current regulations (resolution of the Federal Arbitration Court of the Moscow District of August 29, 2005 No. KG-A41/7336-05).

Execution of letter of credit.

The opening of a letter of credit is not a payment under the agreement. Repayment of the main obligation will occur only upon execution of the letter of credit. However, cash payments under a letter of credit are not allowed.

To receive funds under a letter of credit, the recipient of funds submits to the executing bank four copies of a register of accounts of a special form and the documents provided for by the terms of the letter of credit

If at least one of the terms of the letter of credit is violated, the letter of credit will not be executed (Clause 1, Article 870 of the Civil Code of the Russian Federation).

If the executing bank refuses to accept documents that, by external appearance, do not comply with the terms of the letter of credit, it is obliged to immediately inform the recipient of the funds and the issuing bank about this, indicating the reasons for the refusal (clause 1 of Article 871 of the Civil Code of the Russian Federation). The executing bank is not obligated to verify the actual execution of the agreement under which settlements are made (clause 9 of the Review of the practice of resolving disputes related to the use of letter of credit and collection forms of payment, which is an appendix to the information letter of the Supreme Arbitration Court of the Russian Federation dated January 15, 1999 No. 39 ).

When paying under a letter of credit, the amount specified in the register of accounts is credited (transferred) to the account of the recipient of funds by a payment order from the executing bank (clauses 6.3 and 6.4 of Part I of Regulation No. 2-P).

In cases where the issuing bank, having received documents accepted by the executing bank, considers that they do not correspond in appearance to the terms of the letter of credit, it has the right to refuse to accept them and demand from the executing bank the amount paid to the recipient of funds in violation of the terms of the letter of credit, and to an uncovered (guaranteed) letter of credit, refuse to reimburse the amounts paid (Clause 2 of Article 871 of the Civil Code of the Russian Federation, Clause 5.6 Part I of Regulation No. 2-P).

The terms of the letter of credit may provide for mandatory acceptance by a person authorized by the payer (clause 6.5, part I of Regulation No. 2-P). In this case, the payer's representative himself gets acquainted with the documents presented by the recipient of funds and agrees to execute the letter of credit by making a certain inscription on these documents. The meaning of acceptance is that the payer assumes the risk of unreasonable payment, for example, based on forged documents.

If the executing bank made a payment or carried out another transaction in accordance with the terms of the letter of credit, the issuing bank is obliged to reimburse it for the expenses incurred. These expenses, as well as all other expenses of the issuing bank associated with the execution of the letter of credit, are reimbursed by the payer (clause 2 of Article 870 of the Civil Code of the Russian Federation). However, it is necessary to take into account that the issuing bank’s obligation to reimburse the executing bank for its expenses does not depend on the possibility of their reimbursement by the payer (clause 13 of the Review of the practice of resolving disputes related to the use of letter of credit and collection forms of payment, which is an appendix to the information letter of the Supreme Arbitration Court of the Russian Federation dated 15 January 1999 No. 39).

Closing a letter of credit.

The letter of credit is closed at the executing bank:

Upon expiration of the letter of credit;

At the request of the recipient of funds to refuse to use the letter of credit before its expiration, if the possibility of such refusal is provided for by the terms of the letter of credit;

At the payer’s request for full or partial revocation of the letter of credit, if such revocation is possible under the terms of the letter of credit.

The executing bank must notify the issuing bank of the closure of the letter of credit.

The unused amount of the covered (deposited) letter of credit is subject to return to the issuing bank immediately simultaneously with the closure of the letter of credit. The issuing bank is obliged to credit the returned amounts to the payer's account from which the funds were deposited (Article 873 of the Civil Code of the Russian Federation).

The refund of the amount to the issuing bank under a covered (deposited) letter of credit is carried out by the executing bank by payment order simultaneously with the closure of the letter of credit upon expiration of the letter of credit or on the day of presentation of the document serving as the basis for closing the letter of credit (clause 6.6, part I of Regulation No. 2-P).

Responsibility of credit institutions when making payments using letters of credit.

In accordance with clause 1 of Article 872 of the Civil Code of the Russian Federation, as a general rule, the issuing bank bears responsibility for violation of the terms of the letter of credit to the payer, and the executing bank to the issuing bank, except for the cases provided for in this article.

For example, the issuing bank is responsible for the untimely return of funds from an unused letter of credit.

An example from judicial practice.

At the direction of the joint stock company, a covered irrevocable letter of credit was opened to pay for petroleum products under the supply agreement.

The necessary funds were debited by the issuing bank from the plaintiff's current account and transferred to the correspondent account of the executing bank.

Since the parties to the supply agreement suspended its validity, the seller (recipient of funds), at the request of the joint-stock company, sent a letter to the executing bank with instructions to return the amount of the unused letter of credit to the payer. However, the funds were only partially returned by the executing bank.

The joint stock company filed a claim with the arbitration court against the issuing bank and the executing bank to recover the amount of the unused letter of credit.

The cassation instance of the arbitration court confirmed the correctness of the decisions of the lower courts to satisfy the claims at the expense of the issuing bank, since in accordance with Article 872 of the Civil Code of the Russian Federation, as a general rule, the issuing bank is responsible to the payer, and the executing bank is responsible to the issuing bank. The payer's filing of claims directly with the executing bank is not allowed, except in the case of incorrect payment by the executing bank of funds under a covered or confirmed letter of credit due to a violation of the terms of the letter of credit (Resolution of the Federal Arbitration Court of the North-Western District dated March 11, 2003 N A56-16525/02) .

As already noted, there are two exceptions to the above general rule on the responsibility of the issuing bank.

If the executing bank unreasonably refuses to pay funds under a covered or confirmed letter of credit, liability to the recipient of the funds may be assigned to the executing bank (clause 2 of Article 872 of the Civil Code of the Russian Federation).

In the event of an incorrect payment by the executing bank of funds under a covered or confirmed letter of credit due to a violation of the terms of the letter of credit, liability to the payer may be assigned to the executing bank (clause 2 of Article 872 of the Civil Code of the Russian Federation).

At the same time, acceptance by the issuing bank documents on the execution of the letter of credit from the executing bank without comments and objections does not relieve the executing bank from liability to the payer under the letter of credit.

An example from judicial practice.

The limited liability company, as the buyer under the supply agreement, paid for the goods using an irrevocable covered indivisible letter of credit. Moreover, the condition of payment under the letter of credit, in accordance with the delivery agreement, must be the acceptance of a person authorized by the buyer.

The letter of credit was executed, of which the limited liability company was notified by the executing bank through the issuing bank.

However, the limited liability company did not receive any goods from the supplier, did not send its representative to the executing bank to accept the letter of credit, and did not issue a power of attorney to anyone to make acceptance.

Accordingly, it filed a claim with the arbitration court against the executing bank to recover the amount unlawfully paid under the letter of credit.

This claim was satisfied by the decision of the arbitration court.

By the decision of the arbitration court of appeal this decision was left unchanged.

The cassation court also left these decisions unchanged.

When considering the case, it turned out that the disclosure of the disputed letter of credit was carried out by the executing bank in violation of the requirements for their execution established by regulations.

In particular, the invoices were presented to the executing bank in a form that did not correspond in form and content to the provisions enshrined in Resolution of the State Statistics Committee of the Russian Federation dated November 28, 1997 N 78 “On approval of unified forms of primary accounting documentation for recording the work of construction machines and mechanisms, work in road transport.”

In addition, if the consignor is listed as an open joint-stock company in the waybills, then a limited liability company with the same name is stamped on them.

In this regard, on the basis of clause 3 of Article 872 of the Civil Code of the Russian Federation, liability to the payer under the letter of credit was assigned by the arbitration courts to the executing bank.

The executing bank's arguments that since the issuing bank accepted the documents for the disclosure of the letter of credit from it without comments or objections, then it should be held responsible, were not taken into account by the arbitration courts, since these circumstances are not provided for in paragraphs. 2 and 3 of Article 872 of the Civil Code of the Russian Federation (resolution of the Federal Arbitration Court of the Moscow District dated April 13, 2006 N KG-A40/2541-06).

It should also be noted that the executing bank is obliged to check the documents presented for the execution of the letter of credit based on external features, for their compliance with the requirements of regulations, even if these requirements are not specified by the payer under the letter of credit in the application for opening a letter of credit. Notarization of submitted copies of documents does not relieve the executing bank from this obligation.

An example from judicial practice.

The joint stock company purchased an excavator under a supply agreement, payment for which was made through an irrevocable covered letter of credit.

At the same time, as a payer in the application for opening a letter of credit, it limited itself to only indicating the list of documents upon presentation of which payments under the letter of credit are made, without indicating the requirements for their execution.

The funds under the letter of credit were received by the supplier, but the joint stock company did not receive the excavator.

Believing that the funds were paid by the executing bank in violation of the terms of the letter of credit, the joint-stock company filed a claim in the arbitration court against the executing bank to recover damages in the amount unreasonably paid under the letter of credit

By decision of the arbitration court, the claims were rejected.

The Arbitration Court of Appeal overturned the decision and satisfied the claims.

The cassation court left the decision of the court of appeal unchanged, and the cassation appeal of the executing bank was not satisfied.

As it was established by the court of appeal, on the railway receipt for acceptance of cargo presented to the executing bank by the recipient of funds, which is one of the documents confirming the fulfillment of the terms of the letter of credit, the column “N of the car” was not filled in, which is a violation of the procedure for issuing a receipt for acceptance of cargo, which is one of the parts of the railway consignment note, which is established by the Rules for filling out transportation documents for the transportation of goods by rail, approved by Order of the Ministry of Railways of the Russian Federation dated June 18, 2003 N 39 in pursuance of the Federal Law “Charter of Railway Transport of the Russian Federation”.

In addition, the passport of the self-propelled vehicle submitted to the executing bank does not contain the signature of the authorized person of the manufacturer, which contradicts the Regulations on the passport of self-propelled vehicles and other types of equipment, approved by orders of the State Standard of the Russian Federation dated June 26, 1995 and the Ministry of Agriculture of the Russian Federation dated June 28, 1995 (as amended by Order of the Ministry of Agriculture of the Russian Federation No. 942 and State Standard of the Russian Federation No. 318 dated September 27, 2001).

The courts rejected the defendant's arguments that the characteristics of the documents and the requirements for their execution should have been indicated by the plaintiff in the application for opening a letter of credit, since the requirements for filling out the documents, the violation of which the plaintiff referred to, were established by regulations.

The requirements of regulations cannot be attributed to technical characteristics, therefore, for example, clause 5.1 of Regulation No. 2-P, which talks about the need to indicate the characteristics of documents when opening a letter of credit, in this case the arbitration courts considered it not applicable.

Also, the cassation court supported the conclusion of the appellate court that notarization of copies of documents does not relieve the executing bank from the obligation to check their external appearance for compliance with the law and other regulations, since the notarization to which the executing bank referred confirms that the document existed in the original, and according to the certification inscription did not contain erasures, additions, crossed out words and other unspecified corrections or any features (resolution of the Federal Arbitration Court of the Moscow District dated January 31, 2006 N KG-A40/13937-05).

Features of settlements under a letter of credit by individuals.

The main features of payments by individuals under letters of credit are related to the execution of documents. An individual can transfer to the bank the right to draw up a letter of credit, which must be based on the conditions specified by this individual in the application for opening a letter of credit (clause 3.2.3 Regulation of the Bank of Russia dated April 1, 2003 No. 222-P “On the procedure for making non-cash settlements by individuals in the Russian Federation" (hereinafter referred to as Regulation No. 222-P)).

Unlike cases when individuals use payment orders, partial payments under a letter of credit are allowed (clause 3.5.2 of Regulation No. 222-P), unless in the letter of credit or in the application for opening a letter of credit the payer has not directly indicated the prohibition of partial payments under the letter of credit (paragraph 3 clause 3.2 of Regulation No. 222-P).

Regulation No. 222-P establishes that when making non-cash payments, individuals can use all types of letters of credit established by law (clause 3.1).

A letter of credit used by individuals is intended for settlements with one recipient: an individual, an individual entrepreneur or a legal entity (3.1.2 of Regulation No. 222-P). In this case, the recipient - an individual, when receiving funds under a letter of credit, is exempt from the need to draw up a register of accounts, and simply submits a list of documents provided for by the terms of the letter of credit in any form (clause 3.5 of Regulation No. 222-P).

Payment of funds under a letter of credit is made only by bank transfer (clause 3.5.2 of Regulation No. 222-P), i.e. by transferring funds to the recipient’s bank account.

In the latter case, it is necessary to take into account that settlements with the participation of citizens not related to their business activities can be made in cash without limiting the amount (Clause 1 of Article 861 of the Civil Code of the Russian Federation).

An individual can pay his creditors in cash for the main obligation; the Bank of Russia cannot prohibit this.

However, if the parties to this obligation have chosen such a form of non-cash payments as payments by letters of credit, then they must comply with the relevant requirements of the Bank of Russia.

A letter of credit is a conditional obligation of the bank to make, at the request of the client, payments to individuals and organizations at his expense within the amount and conditions that were agreed upon in advance.

 

A letter of credit is a transaction that is carried out between one or more financial institutions in a non-cash form. The basis for the operation is a specialized application, which is drawn up in the prescribed form and submitted by the buyer in favor of the supplier of the service or product. The parties involved can be only individuals, only legal entities, or both individuals and legal entities.

What is a letter of credit in simple terms? This is a very convenient form of interaction, which, however, is rarely used due to its complexity. A letter of credit is a form of payment that guarantees payment for the supplier and fulfillment of the terms of the contract for the buyer. After delivery of a product or provision of a service, the bank pays the seller its cost. The buyer, in turn, returns the funds to the bank, including interest.

The letter of credit form of payment can be used not only in domestic trade, but also in foreign trade. When applied in international trade, the procedure is governed by the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 600, as amended 2007.

Very often, a letter of credit is compared with a bank guarantee and factoring, however, these concepts are similar only at first glance. Learn more about the letter of credit in the video below.

What is a letter of credit: features of banking services

The use of this form of payment began to develop in Soviet times. OJSC Bashkir Soda Company, which produces caustic soda and is on the verge of bankruptcy, switched to a letter of credit form of interaction with clients in order to still continue its activities.

Funds were credited only after the company provided the bank with documents confirming the fulfillment of the terms of the contract, which were carefully checked. In this example, it can be seen that the letter of credit provided certainty to both parties.

Calculation scheme

Participants in settlements:

• a bank client who uses the service of opening a letter of credit;
• the issuing bank or organization that undertakes the opening obligations;
• executing bank - the organization making payments;
• the individual or legal entity in whose favor the letter of credit was opened.

The letter of credit scheme is quite simple. It includes several mandatory steps:

1. At the initial stage, the buyer and seller enter into an agreement for the supply of products or provision of services.
2. The buyer contacts the bank, where he fills out an application to open a letter of credit. The application is drawn up in the prescribed form.
3. The issuing bank notifies the bank that services the seller about the opening in his name.
4. The executing bank, in turn, notifies the seller.
5. The seller delivers goods or provides services.
6. The seller notifies the executing bank that its obligations to the buyer have been fulfilled.
7. The executing bank makes payment in favor of the seller in the agreed amount.
8. The executing bank notifies the issuing bank of the payment to the seller.
9. The issuing bank, in turn, compensates the payment to the executing bank.
10. Payment documents are transferred to the buyer.
11. The buyer studies the documentation and signs an agreement to pay funds to the issuing bank.
12. Withdrawal of funds from the buyer's account and crediting them to the bank.

The service is provided by the issuing bank on the basis of an application, drawing up an agreement on form 0401063. This document guarantees the supplier that the product or service will be paid for within the agreed time frame. The buyer's funds may not be provided at the end of the algorithm; they may be deposited in advance.

Agreement: drafting, conditions, form

A well-drafted contract includes the following points:

• names of banks, cooperating organizations or full names and passport details of individuals;
• the amount of the letter of credit payment for the services or products provided;
• letter of credit form of payment - non-cash or the use of cash is not allowed;
• methods of notifying parties to the agreement;
• the period during which the contract is valid. During this period, the terms of the agreement between the buyer and the seller must be fulfilled, payment must be made, and all documents must be submitted;
• liability of the parties that will result from failure to fulfill obligations in accordance with this legislation.

The standard list of conditions indicated above may be supplemented with additions regarding the procedure for carrying out calculations. For example, not a full payment, but a share payment may be used. A letter of credit can be issued for payment to one individual or organization. However, the person through whose funds the payment will be made can be changed if this is specified in the contract - the possibility of acceptance.

Types of Letter of Credit

When using this form of mutual settlement, a very important point is the selection of the appropriate type of letter of credit. Any variety is opened by financial institutions, and the type is indicated in the agreement. The types are prescribed in the Regulations of the Central Bank of the Russian Federation:

• According to the type of settlements of financial organizations - covered and uncovered. In the first case, the issuing bank makes cash payments at the expense of its client’s funds in favor of the executor’s bank for the entire duration of the agreement. In the second, the transfer of funds from one financial organization to another is not carried out. At the same time, the executing bank has the opportunity to write off funds within the agreed amount, after which this is compensated by the issuing bank.
• If possible, recall - revocable and irrevocable. In the first case, the form of interaction can be changed or rejected without prior agreement with the opposite party, in the second - only with agreement.
• Confirmed or unconfirmed. In the first case, payments are possible without agreement with the issuing bank and receipt of funds from it.

Legal regulation

The letter of credit agreement is clearly regulated by this legislation of the Russian Federation and is drawn up according to the rules prescribed in the regulatory documents of the Central Bank of the Russian Federation in the event that the agreement is drawn up between domestic organizations or residents of the Russian Federation.

The following regulations must be taken into account:

• Articles of the Civil Code of the Russian Federation from 867 to 873, which regulate non-cash payments under a letter of credit;
• “Regulations on the implementation of non-cash transfers by individuals in the Russian Federation”, adopted by the Central Bank on April 1, 2003;
• “Regulations on non-cash payments” established by the Central Bank of Russia on October 3, 2012.

It is worth considering that the organization in whose favor the letter of credit payment is issued has the right to refuse this form of payment.