Here to help you win business
Within Canada or around the world
We offer both domestic and international standby and import documentary letters of credit, so you can use them anywhere you do business.
Import Letters of Credit
Negotiate better terms from suppliers with confidence, expand sourcing opportunities, and use an import letter of credit as security against working capital loans.
Standby Letters of Credit
Make overseas purchases with increased flexibility, strengthen relationships with business suppliers and put new opportunities within reach.
Frequently Asked Questions
No. A letter of credit allows a financial institution to act as a middle party for a transaction. It is a mechanism for securing payment and performance obligations. It is a guarantee by a credit worthy bank.
A documentary letter of credit (also known as a commercial or payment letter of credit) is issued by a buyer of an international product or service. The buyer and seller will negotiate which documents must be presented to the issuing financial institution to release payment to the seller. These documents may include, but are not limited to:
- Commercial invoice (proof of value, bill of lading or proof of shipment)
- Packing list (proof of packing), inspection certificate (proof of quality)
- Insurance certificate (proof of insurance)
All conditions of payment will be in the letter of credit. The letter of credit (LC) protects the seller as a guarantee for payment moves from the buyer to the buyer’s bank once the LC is issued. The LC also protects the buyer as the issuing financial institution (typically the buyer’s bank) will hold funds until documents are received from the seller. When a seller makes a demand that complies with the letter of credit, the financial institution is obligated to pay.
A standby letter of credit acts as a form or security for a future performance or financial obligation. Whether the LC is called or not depends on whether the issuer has performed or paid the financial obligation. This type of LC “stands by” until if or when a beneficiary demands on the instrument. Like a documentary credit, when a beneficiary makes a complying demand, the financial institution is obligated to pay.
When a standby letter of credit has this clause included, it does present extra risks for the applicant. With this type of clause, the applicant and issuing financial institution needs explicit consent from the beneficiary to cancel the letter of credit otherwise it will automatically renew at each renewal period.
Letters of credit and surety bonds are types of performance bonds.
A letter of credit is a guarantee made by a financial institution on behalf of a business, typically the financial institution’s customer. The demand on the instrument is a monetary demand only and typically represents a portion of an underlying contract or financial obligation.
A surety bond is a three-way contract between the principal, the surety and the obligee. The surety financially guarantees to the obligee that the principal will act according to the terms of the bond. Surety bonds are insurance products and not offered by ATB.
It starts with a conversation between you and your financial institution. (If that’s us, great! Reach out to your usual ATB contact or use the information below.) Please note that you’ll need an authorized credit facility for the full amount of the standby letter of credit or guarantee.
Bank guarantees and letters of credit are similar in that they provide the confidence a transaction needs to go forward. A letter of credit ensures that a deal goes ahead, whereas a bank guarantee reduces losses if a transaction doesn’t go to plan.
If the payment demand is in compliance with the terms of the letter of credit, the issuing financial institution pays the beneficiary under the terms of the letter of credit. However the issuing institution will only determine the validity of the draw, not the validity of the reason for the draw.