2020/12/26

Internal letters of credit that are opened in Iranian Rials and the destination of goods or services, residence of related banks, applicant, and beneficiary, is located the geographical borders in the Islamic Republic of Iranwithin

 

 

Internal letters of credit that are opened in Iranian Rials and the destination of goods or services, residence of related banks, applicant, and beneficiary, is located within the geographical borders in the Islamic Republic of Iran

In this instruction, the internal letter of credit in Rial is abbreviated as “internal letter of credit

 internal letter of credit (LC) is a payment method through the country’s banking system in which the opening bank at the request of the municipality (buyer or employer) is definitively and irrevocably committed to the delivery of goods or services by the beneficiary (seller or contractor) to the municipality and submit its letters to the designated bank, pay for the goods or services at the agreed maturity to the beneficiary; provided that the credit beneficiary meets the conditions stipulated in the letter of credit and submits the stipulated documents to the bank following the credit conditions in the agreed time

Internal letter of credit is irreversible and any change in the terms of credit or its cancellation is possible with the consent of the parties (seller and buyer)

 

:The benefits of using the internal letter of credit (LC) for economic actors are as follows

        Reducing financial costs in commercial contracts

       Reducing the need for commercial and production units for liquidity

       Reducing the financial risk of sellers and contractors and expediting the collection of their claims

         Increasing customer credit in the banking system

        Owning the banking facilities to provide raw materials and working capital

         Facilitating and developing trade exchanges with trading partners through the banking system

    Reducing the risk of buyers and sellers in commercial transactions and ensuring good performance for the other party’s obligations

Another advantage that can be considered is that sometimes the obstruction of governments in times of war, sanctions, or problems related to currency exchanges may also cause problems in the payment process; Therefore, the validity of internal letters could be used

 Despite the many benefits of the payment method, which largely solve payment problems, using this method, like any other method, may involve several risks

 Therefore, it is necessary to be careful to use it and to choose the best payment method for each transaction by examining the aspects of the issue

 Some of the most important dangers of using the method are related to the possibility of fraud or forgery of letters related to the delivery of goods or alteration and manipulation of the text itself. Of course, due to the fact that in the new regulations, these exchanges are done and controlled through electronic financial systems, the possibility of such abuses has also decreased

In this regard, the municipality is required to use financing with the credit of internal letters to advance its projects such as purchasing and equipping the bus fleet, city trains, purchasing construction materials in construction projects

 It should be noted that the useful necessity of a letter of credit, considering the many benefits it has for economic actors in the field of production and trade, requires expertise and technical familiarity with internal and international trade and banking terms and regulations. Insufficient familiarity with the rules and applications of various types of letters of credit leads to the loss of valuable opportunities in this field

 

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