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Documentary Letters of Credit
TARGET USER:
Companies seeking to reduce the risks associated with exporting into and/or importing from foreign markets.  The use of documentary letters of credit reduces the risk to both buyer and seller in an international sale and can be used for one-time or recurring transactions.  The title documents to a shipment and the payment for the same are exchanged between the exporter’s and importer’s banks, respectively.  As long as the shipment meets the standards established between the parties, payment is guaranteed.
ADVANTAGES: Text Box: -The exporter can expand its revenue base by selling into foreign markets with limited payment risk. -The importer can buy from foreign markets with limited risk of non-shipment.
   
DISADVANTAGES:
-Adds costs to The product: typically each party pays their own transaction costs.
HOW TO APPLY: Text Box: Contact a bank that has a documentary letter of credit department. The exporter will need a bank that can advise or confirm its incoming letters of credit and assist in producing the documents required for payment under the letter of credit. When a bank issues an outgoing letter of credit on behalf of an importer it is considered a credit obligation, just like a loan. The letter of credit can be issued under an existing credit line or documented and secured separately. For further information on documentary letters of credit, visit the web site of the International Chamber of Commerce (“ICC”), the governing body for documentary letters of credit, at www.iccwbo.org. Consider buying and reading “Guide to Export-Import Basics” available on their website bookstore.
 
Source:  Economic Development Council
Alternative Finance Committee, 2003
ECONOMIC DEVELOPMENT COUNCIL * MANATEE CHAMBER OF COMMERCE
P.O. BOX 321 * 222 10th Street West * Bradenton, FL 34206-0321 * Phone: +1 (1-941) 748-3411 * E-mail: Info@manateeEDC.com