Documentary letter of credit
A letter of credit is a secure multinational trade transaction settlement method. It is a written undertaking of the bank to pay a specified amount for the exporter in the name of importer. The condition is that exporter submits documents on the terms set out in the letter of credit. It is collateral for a specified period of time and of a specified value, considering the method of sending payment. For the importer, a documentary letter of credit improves its credibility and eases the contract negotiations and settlements and protects exporter from the payer insolvency or refusal to pay.
CHECK, HOW LETTER OF CREDIT CAN SECURE YOUR TRADE TRANSACTION
Every trade transaction side has their own risks and concerns that they want to mitigate. Letter of credit – thanks to bank involvement – is a response for both security of both sides.
- Importers perspective
- Exporters perspective
For the importer, a documentary letter of credit improves its credibility and eases the contract negotiations and settlements.
BENEFITS FOR THE APPLICANT (importer)
DOCUMENTARY COLLECTION – A SIMPLER SOLUTION WHEN FINANCING IS NOT NEEDED
When the importer only wants to confirm the existence and shipment of the goods and confirm their characteristics before making payment to the exporter, they can take advantage of import documentary collection. Commercial documents subject to collection are proof of the existence of the goods and protect the importer from making payment for goods that do not meet their requirements. The importer decides whether to pay based on their evaluation of the documents.
Letter of credit is a form of protection for the exporter against the risk of insolvency of the payer (importer) or refusal to make payment.
BENEFITS FOR THE EXPORTER
DOCUMENTARY COLLECTION – A SIMPLER SOLUTION WHEN FINANCING IS NOT NEEDED
If the exporter wants to control the goods until payment is made or a promissory note or obligation to pay is issued by the importer, they can take advantage of export documentary collection. Export documentary collection protects the interests of the exporter, who controls shipped goods until the documents are passed to the importer.
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