Product

Letter of credit

Letters of credit are important instruments in international trade which guarantee that a Norwegian exporter will receive payment for their goods and services. Letters of credit are issued by the parties’ banks and are particularly useful when the parties do not know each other well or trade valuable assets

Eksfin can guarantee the money transfers of an exporter with two types of letters of credit: export letter of credit and import letter of credit.

Start søknad

About the product

Export letters of credit guarantee payment to Norwegian exporters

If a Norwegian exporter is concerned that a foreign buyer will not pay as agreed, the risk can be mitigated by asking the buyer to contact their bank, so the bank can grant and issue a letter of credit for the benefit of the exporter. A letter of credit entails that the buyer’s bank is obliged to pay the purchase amount on certain conditions.

How a letter of credit works

In order to prevent the exporter from bearing the risk for the foreign bank’s ability to pay, the exporter’s bank can guarantee that the customer’s bank settles payment. The bank can thereafter apply to Eksfin to mitigate some of the risk attached to the foreign bank. Eksfin has agreements with several Norwegian and international banks regarding letters of credit.

Other advantages of letters of credit:

The purchase amount can be discounted by the exporter’s bank: The exporter’s bank can offer to pay the exporter for the goods earlier than agreed. Interest will be charged once the exporter has provided documentation and it has been accepted by the bank.
The exporter can start production, as payment is guaranteed even in the period before the goods are delivered.

Conditions and structure

Eksfin guarantees the risk the exporter’s bank bears in relation to the customer’s bank abroad.
The guarantee covers a portion of the bank’s potential losses if the letter of credit amount is not paid by the customer’s bank on the due date.
The guarantee normally covers 50% of the credit amount. In some cases, Eksfin may cover more.

How much does the guarantee cost?

Eksfin charges a premium for the guarantee equivalent to the bank’s guarantee premium and on the same conditions. The premium and other payments are collected by the bank that confirms the letter of credit.

Which banks offer export letters of credit and how to apply?

All banks that confirm a letter of credit in connection with Norwegian exports can apply to Eksfin for an export letter of credit. The exporter’s bank applies to Eksfin for a letter of credit. It normally takes Eksfin one to two working days to process applications. However, it can take up to several weeks to process complex cases.

As per September 2024, Danske Bank, DNB, Nordea, SEB and Standard Chartered Bank have entered into agreements to offer letters of credit guaranteed by Eksfin. Eksfin is positively disposed towards entering into corresponding agreements with more banks, and we can also process hedging applications without an agreement.

Ask your bank if it offers letters of credit guaranteed by Eksfin or contact us directly to discuss your options.