Opening Internal-Rial Letters of Credit
Changeable economic conditions with the orientation towards globalization, has caused lack of stability in prices and lack of balance in the market of goods and services. The consequence of these fast changes and its influence on the internal and international markets, in addition to lack of confidence and assurance in economic decisions, has affected the commitments of people and institutions towards each other severely and, as a result, has caused an impression due to the psychological concerns and expectations.
In such conditions, one of the methods that can bring back the confidence in each other for providing services is the letter of Credit which is performed by banking systems.
Definition of Internal/Rial Letters of Credit
Rial Internal letters of credit is a method of payment and one of the services provided by banks requested by a buyer/applicant in order to purchase or order of goods from a seller/beneficiary. These letters of credit could be in form of cash (sight) or termed (credit).
A noticeable point about about Internal/Rial letters of credit is that it is opened as "irreversible", which means any changes in the credit conditions by the buyer or the L.C opener, depends on the agreement of the seller.
The most important feature of Internal L.C is that the buyer and the seller or the employer and the contractor are both inside the geographical borders of the country and consequently, they follow the internal regulations and in case some relevant rules and regulations dont exist inside the country, international regulations of UCP600 will be applied. The second important feature of L.C is being Rial-based.
Various kinds of Internal-Rial Letters of Credit concerning the method of paying the credit funds
- Sight internal Letters of Credit (L.C)
In this kind of credit, the bank must pay the fund of credit as soon as the seller provides determined documents which match the conditions of internal letters of credit.
- Term Internal Letters of Credit (L.C)
In this kind of credit, based on the primary contract, the prices of goods and services, according to the agreement in certain maturity after the commitment accomplishment by the seller, will be paid on behalf of the bank. In the term credit, there isnt usually an immediate need for the credit fund and in fact a deadline for the fund payment is considered. However, based on the credit and commitment of the opener, the payment of the credit on the maturity is guaranteed.
In cases that a seller has an urgent need for the fund can be immediately received from the bank after providing the documents and the seller bank provides the seller financially by purchasing debts and supplying loans.