DLC, SBLC andGuarantee
JPX provides several solutions for companies that require financial instruments to leverage their orders and strengthen their trade between the producer and the buyer. We have a strong alliance with multiple banks to provide SBLC, DLC and Guarantees that allow carrying out financial operations necessary for the operation. of your business.
Documentary Letters of Credit
What is a documentary letter of credit?
A documentary letter of credit is a definite undertaking from the issuer (i.e. issuing bank) to the beneficiary that the issuer will pay the beneficiary money when the beneficiary provides certain documents to the issuer in a certain manner time and place.
How Does it Work?
The following parties are normally involved in the letter of credit circle: the supplier (beneficiary), the issuing bank, the buyer (applicant), who is also the bank’s client, and often an advising bank, of whom the beneficiary is a client. However, technically only the following parties are actual parties to a letter of credit: Beneficiary | Issuer | Confirming bank (in case letter of credit is confirmed)
Guarantees
What is a Guarantee?
A Guarantee is a promise of payment from the Guarantor to the Beneficiary that the Guarantor will pay the beneficiary when the beneficiary submits certain documents or makes a specific demand to the Guarantor in a certain manner time or place.
Types of Guarantees
A Bank Guarantee is a versatile tool which can function as a number of instruments: a bid bond, a performance bond, and advanced payment guarantee, a warranty bond, a letter of indemnity, a payment guarantee, a rental guarantee, or a confirmed payment order.
Request
Fill out and send JPX a request for a Guarantee using the online application.
Draft
JPX custom builds the Guarantee. The client confirms and signs the final version.
Due Diligence
JPX’s client compiles several requested documents relating to its company. JPX scrutinizes these documents to insure the deal complies with all international regulations.
Issuance
JPX Issues its client’s Guarantees though the agreed-upon issuer. JPX monitors the Guarantee carefully to insure that it gets to the beneficiary.
Stanby Letter of Credit
What is a standby letter of credit?
It is a guarantee of payment issued by a bank on behalf of a client that is used as payment in case of default by the applicant.
How does it work?
A breakdown of SBLC types is provided below:
Our Process
Request
Fill out and send JPX a request for a Standby Letter of Credit (SBLC) using our online application.
Draft
JPX custom builds the SBLC. The client confirms and signs the final version.
Due Diligence
JPX’s client compiles several requested documents relating to its company. JPX scrutinizes these documents to ensure the deal complies with all international regulations.
Issuance
JPX issues its client’s SBLC though the agreed-upon issuer. JPX monitors the SBLC carefully to insure that it gets to the beneficiary.
Case of Succes
Medical Technology Company Sought to Repair Relations with Supplier
Background
A few years ago, a small, medical technology firm (“Back Co”) sought to issue a Bank Guarantee or Standby Letter of Credit to help them negotiate a tense situation with their supplier.
Back Co sells a single product: A kit consisting of implants for spinal fusion surgery. Like its competitors, Back Co’s kits consisted of several dozen parts that the doctor could choose from during the operation. The parts were necessary due to the sensitive nature of the surgery because slight differences in spinal segments from person to person would require different implants. Back Co’s kits where costly, but allowed doctors to perform successful spinal fusions on virtually all patients. Usually, hospitals ordered these kits in large batches schedule for earliest possible delivery. Upon receiving an order, Back Co would obtain all necessary components from its various suppliers and, upon receiving the components, would package and send the kits to their customers.
In order to become more competitive, Back Co decided cut down on lead time. The lead-time on this process was usually at least several weeks although the customers preferred immediate delivery. Back Co’s management team realized that if they had the kits available on hand (i.e. in inventory), they could ship to their clients within days of receiving a purchase order. Back Co used its available cash reserves and credit lines to procure storage space, and ordered enough supplies to cover their projected sales for the next quarter.
The Problem
Back Co soon realized that they were falling significantly short of their projected earnings that season. Cash flow was tight and some vendor payments had to be delayed. Usually, Back Co settled transactions with their largest supplier, a producer of medical screws (“Screw Co”), on an open account basis – Screw Co. was extending credit to Back Co.
by giving them payment terms on the cost of goods rather than requiring payment upfront or prior to shipment However, after failing to pay Screw Co on time, the supplier stopped extending credit to Back Co. and withdrew their payment terms until Back Co. could sell the inventory they previously purchased on open terms and pay down their balance with Screw Co.. In the absence of immediate payment, Screw Co wanted an instrument to help them secure their finances, even if Back Co did not sell its inventory.
The Solution
Back Co’s management team considered using a Bank Guarantee or a Standby Letter of Credit. After Back Co explained their dilemma to us, we deliberated and decided that a Standby Letter of Credit was the instrument best suited for this situation. By providing Screw Co a Letter of Credit from a top global bank, Back Co was able to continue operating without further straining their relationship with their supplier.
During the term of the Standby Letter of Credit, Back Co’s sales grew, revenue increased, and they were able to pay Screw Co. in full by the time the instrument expired. By giving Back Co. time to sell their inventory without hassle from their supplier, the Standby Letter of Credit helped to ensure that Back Co. was able to repair its tense relations with Screw Co and to obtain credit from them in the future. Thus, Back Co’s supply chain was not only maintained but strengthened because their supplier now had proof that Back Co. would work with them to handle tough situations in the future. This gave Screw Co. sufficient confidence to restore their faith in Back Co. and to reinstate their favorable credit terms.
Frequently Asked Questions
Ask Questions
How long does it take to get financed?
It depends on the type of facility a client needs, and the response time of the client. Many transactions close within 3 days, although in some cases JPX can put a facility together in as little as 24 hours
Why use JPX instead of other financiers?
JPX leverages its network of world class financing sources and logistics partners to offer the most competitively priced, quality Trade Finance solutions – including Letters of Credit and Guarantees. Talk to us, and together we will find a financing plan that serves you best.
What is the quality and degree of guidance I can expect for each transaction?
JPX’s professional team strives to make the entire LC process simple and easy to understand, regardless of whether you are a financial expert or have never heard of LCs before.
Analyzing your business’s particular model, JPX can project your expected financial benefit in working with us. JPX strives to provide you with a number of options to choose from, so that you can pick what serves your needs the most.
What kind of consulting do you provide?
JPX provides consulting related to Trade Finance – with an emphasis on the use of letters of credit and guarantees.
I have opened Letters of Credit with my bank before; how are yours different?
Working with us as opposed to your bank is significantly better for two (2) reasons:
1. JPX utilizes its own lines when opening LCs on its client’s behalf. Clients can keep their existing credit lines to use at their discretion.
2. JPX maintains relationships with many banks and financiers. JPX’s clients can take advantage of this network and optimize their deals; they are not stuck with one bank who might not always provide viable solution to the client’s needs.
What kind of collateral do you require to open up a Letter of Credit?
The collateral required depends on the facility type, the issuer, and many other factors – however in most cases JPX is able to structure transactions without the needs for specific collateral. As such, there is usually no need to free collateral pledged to existing financiers or banks
