Trade Finance

Letters of Credit (Documentary Credit)

GN Bank issues Letters of Credit (LCs) on behalf of clients.An LC is a written assurance of a bank (the issuing bank) on the instruction of the applicant (purchaser) to the beneficiary (seller) to pay a specific amount in the agreed currency provided the beneficiary submits shipping documents in conformity with the documentary credit within the prescribed deadlines.

A letter of credit may be issued at Sight or Deferred. When it is at Sight, applicant must make funds available in full to cover the value the transaction for payment to be effected as soon as shipping documents are sighted and discrepancies, if any are acceptable by applicant.A letter of credit is termed deferred when applicant and beneficiary agreed on credit terms where the beneficiary supplies goods to the applicant payable after 30, 60, 90, 120 or even 180 days after bill of lading date.

A customer of the bank with this kind of arrangement will have to apply first and foremost to the bank for a counter credit facility for the same period as the beneficiary. Failure to do this means that, the bank will require full cash cover at the time of establishing the L/C so that on maturity, the bank will comfortably pay the beneficiary.

Documents against payment (D/P) or Sight Collection

This is the type of arrangement where the drawer (seller/exporter) presents the agreed shipping documents to his or her bank (i.e., the remitting bank) immediately after the dispatch of goods and instructs the presenting bank to collect the respective payment from the drawee (buyer/importer) through the buyers bank (collecting bank). Payment becomes due at sight.

Outward Transfers (Non Merchandise)

The Bank also offers Outward Transfers services for its numerous clients.These transfers are usually used for the payment of school fees, medical bills, subscriptions and living expenses among others.In situations where payments are to institutions, there must be supporting documents to justify the payment.

Documentary Collection (Bills for Collection)

The Bank also undertakes Documentary Collection on behalf of its clients.Documentary collection is the instruction of the seller (drawer) to his bank to collect the value of shipping documents from the purchaser (drawee) by handing over the documents against payment or an undertaking to pay.

Documents against Acceptance (D/A)

In case of D/A the drawee (buyer/importer) does not have to pay at sight but to accept an issuance draft (Bill of Exchange) drawn on him/her by the seller. The seller can require that, the accepted draft to be returned to him/her or kept in safe custody with the collecting bank until maturity date. At maturity date, the buyer is required to honour the bill of exchange by payment.

Cash in Advance/Advance Payment

This is the most basic mode of payment for goods and services. The supplier receives cash from the buyer before the goods are shipped or service is provided. Advance payment is very common now because of massive imports from China.

Bank of Ghana strictly requires that clearing documents for imported goods and services paid in advance must be submitted to the paying bank not later than ninety (90) days after payments.

Open Account

This is a credit relationship in which the buyer pays upon the receipt of goods or on deferred payment basis. An open account transaction is a sale where the goods are shipped and delivered before payment is due, which is usually in 30 to 90 days. Parties to this transaction in the strict sense are the seller/exporter and the buyer/importer who have being business relationship for a long time and so risk is of default minimal.

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