Documentary Credit

The Documentary Credit or Letter of Credit is an operation that takes place within the framework of import/export operations.

It is an off-balance sheet commitment by which the importer's bank (ordering client) guarantees the exporter (beneficiary third party) the payment of his goods against the submission of documents attesting to the shipment and quality of the goods specified in the contract.

ADVANTAGES

• Off-balance sheet commitment of the company
• Reconciles the seller's interest, which is to be paid, and that of the buyer, who is to receive the ordered merchandise within the contractual deadlines
• Provides payment security and delivery security

CHARACTERISTICS

• Rate: it varies between 2% and 3%
• Duration: Minimum 03 months and Maximum 09 months
• Amount: depending on the ongoing operation
• Repayment: 30% at opening; 30% at 01 month; 40% at maturity
• Documents to provide: No specific documentation, but everything is linked to business forecasts and changes in operating conditions;
• No guarantee taken