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Commerce-exterieur

The Documentary Credit

What is it ?

The documentary credit is a commitment by the importer’s (issuing) bank to pay a determined amount to the supplier of goods or a service, against delivery, within a fixed period, of the compliant documents proving that the goods has been dispatched or the service performed.

What are the types of documentary credit?

The documentary credit can be realized in several ways:

by sight payment (document given against payment);
term (document given against acceptance of draft);
by deferred payment;
by negotiation.
Advantages

Security

The seller is paid after the documents have been sent by his bank. As for the buyer, he only proceeds to payment upon receipt of the documents relating to the quantities and quality (technical references) of his (or his) order(s), because the control of the documents is carried out by bank staff with the necessary skills to verify the conformity of the documents.

Rapid payment

When the credit is realizable on sigh sight at the cash desks of the notifying bank or if the credit is confirmed, the seller can be paid for the shipment of the goods or the supply of the services if the documentary credit is realizable by acceptance or negotiation , the seller can mobilize the bills created and supply his cash.

High precision

The documentary credit is a very precise technique because, based on the documents, it avoids any interpretation.

Universality

This technique is international and is perfectly suitable for payment of goods or services, import and export. It presents a wide variety of payment solutions given the different types of existing documentary credits.
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