Being a top rated Letters of Credit Provider in Dubai, UAE & India , we at Express Trade Finance, understand the complexities and challenges that come with international trade. That’s why we offer a comprehensive guide to Documentary Letters of Credit (DLCs) – your passport to seamless transactions worldwide.
A Letter of Credit is a contractual payment undertaking issued by a financial institution on behalf of a buyer of goods for the benefit of a seller, covering the amount specified in the credit, payment of which is conditional on the seller fulfilling the credit’s documentary requirements within a specific timeframe.
This is one of the oldest and most standard forms of payment for transactions in international trade. Foreign exporters that deal with unfamiliar companies thousands of miles away are naturally uncomfortable in investing money to produce goods and ship them without any assurance of payment. Likewise, importers dealing with foreign suppliers don’t want to pay upfront for the goods that may not correspond to purchase order specifications or may arrive late. Naturally, buyers would prefer to postpone payment until they receive the goods as expected.
Hence, Sellers receive payment upon fulfilling specified terms, while buyers gain assurance that payment is only released when agreed conditions are met.
This way, for both buyers and sellers in a given transaction, letters of credit represent a reasonable compromise that protects the interest of both sides.
The Documentary Letters of Credit Are Mainly Divided into Two Types:
Letters of Credit at Sight
The LC at Sight is a banking instrument and payment mechanism
which ensures that the delivery and payment terms of both the
exporter and the importer are met through their respective financial
institutions. "At Sight'' stipulates and demands that the issuing bank
should release the necessary documents after the buyer has cleared the
payment for release of shipment documents.
Benefits Of Sight LC :
- The risk of advance payment is reduced to the seller.
- The risk of shipping goods without any guarantee is minimized.
Usance Letters of Credit
The Usance LC also known as Deferred Payment LC carries with it a predefined and mutually agreed upon contractual credit payment term. The credit term can vary from deal to deal but is typically defined as a period of 60, 90, 120 or 180 days. It is one of the most popular types of LC and is commonly used when the importer and exporter already has a healthy working relationship.
Benefits Of Usance LC :
- Customers defer payments to improve their cash flow models. This may cause the exporter significant sales in the long run.
- A buyer will usually receive their order before they must pay their usance lc. This provides ample time to inspect goods making sure that goods are as per the pre-decided quality standard.
Why Choose DLC's?
Risk Mitigation: DLC's provide security for both buyers and sellers, reducing the risk of non-payment and ensuring compliance with agreed-upon terms.
Global Acceptance: Recognized and accepted worldwide, DLCs facilitate trust and confidence between trading partners, even across different currencies and jurisdictions.
Flexibility: With various types of DLC's available, including Letters of Credit at Sight and Usance LC, you can tailor the terms to suit your specific trade needs.
How Can We Help You
Consultation: We provide expert advice on choosing the most suitable type of DLC for your trade transactions, considering factors such as risk tolerance and transaction complexity.
Documentation Assistance: Our team assists in preparing and reviewing all necessary documentation, ensuring accuracy and compliance with DLC requirements.
With Collateral : You do not need to have collateral or relationship with the bank to get a letter of credit—because we do. So you can focus on your business without facing any cash flow issue or any other risks.
DLC Issuance Procedure
1. In order to finalizing the draft , we need following documents/ information.
i. Filled-in Application form/ Proforma Invoice or Sales Contract
ii. Company Trade License
iii. Passport copy of the owner and shareholders
iv. Last three months bank statement
v. One-year audited financials
vi. Shareholding List
2. After acquiring all the above documents/information, we will assist the client in selection of the issuing bank/financial institution and assist in finalizing the draft for client’s review.
3. Upon receiving the draft copy of the instrument, client must thoroughly review the draft for any corrections, additions or removal of information. Should there be any amendments, we can assist in amendment of the draft accordingly to match clients’ preferences. Once the draft is approved by all the related parties, client will need to send us a copy of the draft with authorized signatory’ sign and company stamp on the draft as client’s approval along with an email confirming the same.
4. We will raise the invoice for the charges agreed and client will make the remittance against the invoice.
5.Only after we receive the payment for the raised invoice, we will assist on following with the issuing bank/financial institution consulted and provide assistance in issuing the instrument through swift/courier within 7 working days depending the issuing bank/financial institution policy.
6. Simultaneously we will assist the client in receiving the issued copy through email for reference and record keeping.
Note: The issuing charges would depend on the amount of the LC required, the type of the LC, the issuing bank selected for issuance and the beneficiary bank to which it is to delivered.