|
What are they?
An export documentary credit (or documentary letter of credit) is a guarantee for payment of goods or services issued by a bank on behalf of a buyer, provided the terms of the credit are met. When correctly used, they provide protection, convenience, and security to exporters.
How do they work?
- You and your buyer agree in the contract of sale that payment shall be made by documentary credit
- The buyer instructs his bank (issuing bank) to open and issue a documentary credit in favour of the exporter in accordance with the terms and conditions pre-agreed upon by both the buyer and seller
- The Exporter relies on the co-operation of the buyer to include only necessary and workable terms in the documentary credit
- Document-checking specialists at our International Operations Centre verify the exporters’ shipping documents, then collect payment in accordance with the documentary credit terms
Benefits
- Payment is assured upon shipment of goods and the submission of documents, in strict compliance with the documentary credit terms
- Creditworthiness of the buyer is no longer an issue, which is particularly beneficial for exporters working with new customers, or developing business in unfamiliar countries
- Pre-shipment financing or discounting of accepted drafts, secured by a documentary credit may be possible
Risks
- Documents must be prepared in strict compliance with Letter of Credit terms, or complications may arise
- If the issuing bank were to become insolvent, there is a risk of not getting paid
|
