What is a Documentary Letter of Credit (LC, DLC)?
Letter of credit (Documentary Letter Of Credit (L/C, DLC) is the bank’s obligation to pay the seller of goods or services a certain amount of money in the timely submission of documents conrming shipment of goods or performance of contractual services.
Documentary Letter Of Credit is one of the most important means of nancing in the international trade, as the letter of credit is a tool that removes most of the risks as from the buyer (importer) and from the seller (exporter). Documentary Letter Of Credit is a very exible and convenient tool of calculations, which have the widest recognition and acceptance in the world.
There are the following forms of letter of credit:
Revocable Letters of Credit, which can be changed or canceled by the issuing bank without prior notice
to the recipient of funds. Revoke of the letter of credit does not create any obligation of the issuing bank to the payee. The nominated bank is obligated to make a payment or other operations on a revocable letter
of credit if at the time of their commission they have not received notice of the change of conditions or canceling credit. A letter of credit is revocable if its text does not explicitly state otherwise.
An irrevocable letter of credit is a rm obligation of the issuing bank to pay money in order and the terms dened by the conditions of the letter of credit, if the documents provided for by it, submitted to the bank specied in the credit. An irrevocable letter of credit guarantees that the exporter will make payment to the performance of its obligations, even if an importer wants to abandon the deal. Therefore, exporter, performing a special order, for which most likely will not be another buyer, choose exactly this kind of
letter of credit.
Irrevocable unconrmed letter of credit. When making an unconrmed letter of credit issuing bank, providing a letter of credit, is the only party that is responsible for the disbursement to the seller. Nominated bank has to pay only after receiving the money from the issuing bank. The nominated bank simply acts on behalf of the bank providing credit, so it does not take any risk.
Irrevocable confirmed letter of credit. The obligation of the issuing bank is confirmed another bank . Confirmation is an additional guarantee of payment from another bank. (Bank of the exporter or prime bank.)
Bank, conrming the letter of credit is committed to pay for documents according to the conditions of the letter of credit if the issuing bank fails to make the payment.
Currently, LC issuance is governed by the latest version of UCP 600.