Documentary Letter of Credit (DLC)
Trade Finance & Trade Goods Payment Security Solutions
Key Features of a DLC
Document-Driven Payment: Payment under a DLC is contingent upon the presentation of specified documents (e.g., shipping documents, bills of lading, invoices, certificates of origin). The issuing bank will only release funds once it verifies that these documents meet the terms set out in the LC.
Secure Transaction: Like other LCs, a DLC acts as a guarantee for the seller that they will receive payment once they fulfill their obligations. This adds security for both the buyer and the seller in international trade.
Bank Involvement: The buyer’s bank (the issuing bank) guarantees payment to the seller upon receiving the required documents. If the seller meets all conditions, the bank will release the payment. If not, the bank may refuse to pay
Irrevocable: Most DLCs are irrevocable, meaning they cannot be amended or canceled without the agreement of all parties involved (the buyer, seller, and banks).
How a DLC Works
Buyer and Seller Agreement: The buyer and seller agree on the terms of the sale, including price, shipping, and the documents required for the transaction.
Issuance of DLC: The buyer applies for a DLC from their bank. The bank issues the DLC to the seller through the seller’s bank (the advising bank).
Seller Ships Goods: The seller ships the goods and prepares the required documents that prove the shipment or service has been completed.
Presentation of Documents: The seller submits the required documents to their bank. The seller’s bank checks that the documents comply with the terms of the DLC.
Payment: If the documents are in order, the seller’s bank forwards them to the buyer’s bank, which then releases the payment to the seller. The buyer’s bank later reimburses itself by debiting the buyer’s account
Documents Typically Required for a DLC
Bill of Lading: A document that confirms the shipment of goods.
Commercial Invoice: A detailed invoice showing the sale and shipment of goods.
Packing List: A detailed list of items included in the shipment.
Certificate of Origin: A document certifying where the goods were manufactured
Insurance Certificate: A document showing the goods are insured during transit.
Advantages
For the Buyer: Ensures that payment will only be made once the goods or services are delivered as agreed.
For the Seller: Guarantees payment from a reliable financial institution, reducing the risk of non-payment.
Difference Between DLC and Other LCs:
DLC vs. SBLC (Standby Letter of Credit): While a DLC ensures payment after goods are shipped, an SBLC is a guarantee that payment will be made if the buyer defaults or fails to fulfill their obligations.
DLC vs. Commercial LC: Both terms are often used interchangeably, but a DLC emphasizes the requirement of documents to trigger payment
In summary, a Documentary Letter of Credit (DLC) is a secure method of payment in international trade, ensuring that sellers receive payment upon providing documents that prove they have met the agreed-upon terms of the transaction.
Instrument & Service Description:
Documentary Letter of Credit (DLC) Introduction
(also known as Commercial Letters of Credit CLC)
A documentary letter of credit 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 investing money to produce goods and ship them without any assurance of payment. Without a letter of credit, exporters generally ask for substantial deposits or other payment guarantees. Letters of credit allow buyers to avoid these undesirable alternatives.
Likewise, importers dealing with foreign suppliers don’t want to pay upfront for goods that may not correspond to purchase order specifications or may arrive late, if ever. Naturally, buyers would prefer to postpone payment until they receive the goods as expected. Letters of credit can prevent buyers from losing deposits when the sellers’ performance is deficient in any way. Without the letter of credit, buyers are left to fend for themselves to recover their deposits if goods are not produced according to spec.
For both buyers and sellers in a given transaction, letters of credit represent a reasonable compromise that protects both sides’ interests by assuring exporters that they will get paid once they produce and ship the goods according to certain documentary requirements that in turn protect importers’ interests. This is akin to an escrow arrangement, ensuring exporters that the goods won’t be released until they get paid and providing buyers with a guarantee that they will get the goods if the exporter is paid.
Remember that Ice Invest Capital Trading offers unsecured letters of credit, something most other financiers do not. Unsecured means you do not have to tie up valuable collateral to open a letter of credit.
Important
A Documentary Letter of Credit (DLC) normally forms of payment security or payment guarantee between a Buyer and Seller of Goods. Therefore the Documentary Letter of Credit (DLC) we provide clients are NOT MONETIZABLE and are NOT TRANSFERABLE like a Bank Guarantee (BG) would be. A Documentary Letter of Credit (DLC) is a specialist payment mechanism that is used for a specific buy and sell goods transaction, a DLC cannot be monetized by a 3rd party.
Bank
ABN AMRO Bank
Bank Hapoalim
Bank of Baroda
Bank of India
Bank Leumi
Bank Santander
Bank Winter
BNP Paribas
China Construction Bank
CIBC
Citibank
City National Bank
Dah Sing Bank
DBS Bank
East West Bank
Habib Bank
Hamni Bank
HSBC
IDB Bank
Indian Overseas Bank
New York Community Bank
Standard Chartered Bank
Standard Commerce Bank
TD Bank
UCO Bank
U.S. Credit Corp
Wells Fargo
LC
NO
YES
YES
YES
YES
YES
YES
NO
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
NO
YES
YES
YES
YES
YES
DLC
NO
YES
YES
YES
YES
YES
YES
NO
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
NO
YES
YES
YES
YES
YES
SBLC
YES
YES
NO
NO
YES
YES
YES
YES
NO
YES
YES
YES
NO
NO
YES
YES
YES
YES
YES
NO
YES
YES
YES
YES
NO
YES
YES
BG
YES
YES
NO
NO
YES
YES
YES
YES
NO
YES
NO
YES
NO
NO
YES
YES
YES
YES
YES
NO
NO
YES
NO
YES
NO
NO
NO
⦁ You may not have the necessary collateral requirements or relationship with the bank to get a letter of credit—but we do
⦁ You don’t have to leave deposits with your suppliers, since your letter of credit will be opened for the full amount of the transaction—so your cash is not tied up or at risk while your supplier can often borrow against a letter of credit
⦁ You may significantly increase your ability to do business with companies outside the U.S. by bolstering your financial position with your suppliers
⦁ You can build safeguards into the letter of credit, including inspection of the goods and quality control, and set production and delivery times. This gives you more quality control over your goods.
⦁ Payment is assured as long as you comply with the terms and conditions of the letter of credit.
⦁ The credit risk is transferred from the buyer to the issuing bank, which is obligated to pay even if the buyer goes bankrupt.
⦁ You have easier access to financing and are able to transfer all or part of the letter of credit to another party, e.g., to purchase raw materials
⦁ Collection time is minimized, as the letter of credit accelerates payment of receivables, and foreign exchange risk is eliminated when it is issued in the currency of your country.
Step 1: Application
Complete and return the Documentary Letter of Credit (DLC) Application and Pay the $10,000 USD Application fee.
Step 3: Draft Review and Opening Payment.
a) Once you and your supplier finalize the draft and sign off your acceptance of the draft (changes are free of cost).
b) We then issue you with an Invoice for the Documentary Letter of Credit (DLC), which you arrange to pay.
c) Upon receipt of your wire payment, we release the finalized Documentary Letter of Credit (DLC) to the bank for issuance and delivery.
Step 5: Presentation of Documents.
Once the supplier has prepared and loaded the goods for transit, they must present the specified documents for that shipment to their bank. Their bank will transmit these documents to our bank. We will email you copies of the presentation (and all documents submitted by the supplier) for your review and approval.
Step 2: Issuing of Draft.
We will then create a draft of the Documentary Letter of Credit (DLC) for you and your supplier to review.
Step 4: Issuance.
Typically, the bank will issue the Documentary Letter of Credit (DLC) within 48 hours of release. Upon issuance, we email you a copy of the DLC as transmitted by SWIFT, including the DLC reference number. Your supplier’s bank should receive and confirm the Documentary Letter of Credit (DLC) transmission shortly thereafter.
Step 6: Payment for Goods.
Before our bank releases the original documents, we must receive payment for the presentation. Upon receipt of payment, we consign the documents to you and overnight them to your freight forwarder or whomever you designate – thus completing the transaction
