BCL - Bank Comfort Letter and POF - Proof of Funds - What it is and what it is for.

It is common for commodity sales intermediaries to say that they will only analyze orders accompanied by LOI + BCL.

The LOI, as we have already seen in this article, is the Letter of Intent that presents the buying group.

On the other hand, the BCL, or Bank Comfort Letter, is a document generally issued by investment banks in which the bank says that the client has a good credit history, sufficient to support large operations, or in which the bank says that it is willing to grant loans to the client, sufficient to cover the value of a given operation. That is, it is a vote of confidence issued by the bank, with the purpose of assisting in the generation of confidence (comfort) between the parties.

The BCL has served especially when the parties never saw each other and when the transaction needs speed. For example: a medium-sized trading company, located in Pakistan, wants to buy chicken from a Brazilian meat packing plant that is represented by a broker.

If the transaction is not in a hurry, the broker can access the history of the probable buyer with international credit agencies (a type of Serasa). You can also check calmly all the documentation of the company, etc..

However, if the deal is urgent, the broker can request a BCL from a reputable bank. If the letter arrives, the likelihood of the buyer being serious is high. In this case, it will be justifiable to invest time in conducting the business.

If the buyer cannot provide the BCL, this may indicate that it is not a final buyer, but an intermediary probing the market. Or it may indicate that the buyer is unable to provide credit quickly.

Although, in today's market, the BCL can sometimes be considered a refinement, an excess. It will depend on the market profile and the situation.

Note that the BCL is just a compliment from the bank and does NOT guarantee payment. The payment will only be guaranteed after the issuance of a bank guarantee (BG) or a letter of credit (L/C).

However, the issuance of guarantees can only occur after the contract is signed, which logically only happens after the negotiation is concluded.

Thus, the BCL serves as an incentive for the parties to enter into an engagement while they do not yet know each other well.

When the parties already know each other, the BCL becomes unnecessary and the focus becomes the reissue of collateral.

The term POF is related, but not identical. POF means proof of funds and means exactly that. Proof that a certain company has a certain value in its current account. This document is not widely used in practice. But it can be used for specific transactions. The term can also be used generically to describe the BCL or other forms of credit statement.

What is a bank confirmation letter (BCL)?

A bank confirmation letter (BCL) is a letter from a bank or financial institution that confirms the existence of a loan or a line of credit that has been extended to a borrower. The letter officially confirms the fact that the borrower - usually an individual, company or organization - is eligible to lend a specified amount of funds for a specified purpose.

How a Bank Confirmation Letter (BCL) Works

The purpose of a bank confirmation letter is to guarantee a third party, usually a seller, that the borrower has access to sufficient funds to complete a transaction, such as the purchase of goods. A letter of confirmation - sometimes known as a comfort letter - is not a guarantee of payment, but only a guarantee of the borrower's funds to make payment.

Letters of confirmation usually require the signature of representatives of the bank or financial institution who are authorized to issue this correspondence.

Since a letter of confirmation is issued for a specific transaction or project, it is not transferable to a different transaction or project. If your bank customer decides to enter a different transaction or purchase, it is usually necessary for your customer to obtain a new letter of confirmation. For example, a potential homebuyer decides to buy a different house from the one specified in the letter of confirmation; a new BCL would be required.