Documentary

Letter of credit

A Documentary Letter of Credit or Letter of Credit is a payment medium widely used in International trade to secure a guarantee from a Bank or a Financial Institution to an exporter. These are best used when the reliability of the parties in an international purchase transaction cannot be easily or readily determined. The issuer in this case, assumes the liability of the importer for the payment. ​

A Documentary Letter of Credit assures the exporter that payment for the exact value of the DLC will be honored and credited to them so long as they make a compliant presentation of documents.

TYPES OF DLC

LC AT SIGHT

A letter of credit that is payable as soon as the complying documents have been presented to the issuing bank or the confirming bank”. If is the issuing bank or the confirming bank finds out that the presentation is complying then they remit the funds to the beneficiary which is usually within 5 bank working days.

USANCE LC

A usance letter of credit is a specific type of letter of credit that allows a predetermined credit period to the buyer i.e. the importer. In common business usage, a usance letter of credit is also known as a differed letter of credit

BENEFITS OF DLC

BUYER

  • Works as a credit certificate for buyer
  • Elimination of risk of losing money
  • Timely Shipments
  • More Favorable Payment Terms
  • Safely expand business internationally

SELLER

  • Reducing the production risk, if the buyer cancels or changes his order
  • Mitigates the risk of dealing with an unknown importer in a foreign nation.
  • possibility of payment before handing the goods over to the buyer
  • More Favorable Payment Terms
  • seller is free of credit risk

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