WHAT IS A DOCUMENTARY LETTER OF CREDIT? (DLC)
A Documentary Letter of Credit (DLC) or At Sight Letter of Credit (Sight LC) is a financial instrument, issued by banks or trade finance institutions through a SWIFT MT700 message, where seller/exporters(beneficiary) receive payment from the buyer/importer(applicant), once the terms specified in the DLC are completely fulfilled.
Once the terms specified in the Documentary Letter of Credit (DLC) are fulfilled and the applicant cannot pay, then the beneficiary can make a compliant document presentation to demand payment.
HOW DOES THE DOCUMENTARY LETTER OF CREDIT (DLC) PROCESS WORK?
The parties involved in issuing a Letter of Credit (LC) are the beneficiary, the issuing bank or financial institution, applicant who is also the bank’s or financial institution’s client, and usually an advising bank of whom the beneficiary is a client.
A Letter of Credit (LC) requires that the beneficiary present certain documents before the letter of credit’s expiration.
These particular documents are directly related to the contract between the beneficiary and the applicant, as they show the issuer that the beneficiary has completely fulfilled his/her side of the deal.
HOW TO PROCESS THE DLC
The Documentary Letter Of Credit (DLC) Process:
Step 1: Application
Complete and return the DLC application with the documents from your deal (Pro Forma Invoice, SPA, Contract, etc.).
Step 2: Draft
We will create a FREE Documentary Letter of Credit SWIFT MT700 draft for you and your sell/exporter to review and confirm.
Step 3: Draft Review & Opening Payment
Once you and your beneficiary have finalized the DLC draft (changes to the draft are free of charge) and are ready to obtain the DLC, you then wire the opening fee to our bank according to the pro forma invoice sent to by us.
Once we have received the wire, we will release the finalized Documentary Letter of Credit (DLC) to the bank or financial institution for issuance by SWIFT MT700.
Step 4: Issuance
In most cases, the bank will issue the DLC within 48 hours of release. Once the DLC is issued, we email you a copy of the Documentary Letter of Credit as it is transmitted by an MT700 SWIFT message to the beneficiary, including the DLC reference number.
Your beneficiary will be able to confirm the receipt of the DLC transmission shortly thereafter.
Step 5: Presentation of Documents
Once the beneficiary has prepared and loaded all goods for shipment, they must send the specified documents for that particular shipment to their own bank (the advising bank).
Their bank will then forward the documents to our bank (the issuing bank), and we will email you copies of the presentation and all of the documents that were submitted by the beneficiary for your review and approval.
Step 6: Payment of Goods
Before our bank can release the original documents, we must receive payment for the presentation. Once we have received payment, we cosign the documents to you and overnight them to your freight forwarder or to whomever you wish.
This completes the transaction.
The Documentary Letter Of Credit (DLC) is governed by a set of guidelines known as the Uniform Customs and Practice (UCP 600), which was first created in the 1930s by the International Chamber of Commerce (ICC).
ADVANTAGES OF GETTING YOUR DOCUMENTARY LETTER OF CREDIT AT EASE
FOR YOU (THE APPLICANT)
If you don’t have the necessary collateral requirements or a good relationship with a bank to receive a letter of credit—we do.
There is no need to leave a down payment or deposit with your beneficiary since your Documentary Letter of Credit (DLC) will be opened for the entire amount of the contract. This will free up capital in your business and will lower your risk in the transaction. The beneficiary can often borrow against the DLC to receive their money faster.
You can protect yourself even further by adding safeguards into the Documentary Letter of Credit (DLC) including quality control, an inspection of goods, and set delivery and production times.
You may open up all types of new opportunities to do business with foreign companies by strengthening your financial position with your beneficiary.
- Get your letter of credit now with ease.
FOR THE BENEFICIARY
As long as you stick to the terms and conditions of the Documentary Letter of Credit, payment is guaranteed.
You are protected against the applicant not being able to pay or going bankrupt. The issuing bank takes on the credit risk when they issue the DLC.
Lower your collection time on receivables since the DLC accelerates payment of goods sold.
You will have an easier time receiving bank financing as you can often use the Documentary Letter of Credit with ease as collateral.