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Documentary Letter of Credit (L/C, DLC)
A Letter of Credit represents the bank’s obligation to pay to the seller of goods or services a certain amount of cash in case of timely provision of the relevant documents confirming shipment of goods or fulfillment of contractual services.
A Documentary Letter of Credit is one of the most important means of financing in international trade, because it is a means of eliminating most risks for both the buyer (importer) and the seller (exporter).
A Documentary Letter of Credit is a very flexible and convenient instrument for settling accounts, that gained huge recognition and spread all over the world due to the following advantages:
1. For the seller, a Letter of Credit is convenient as it eliminates the risk of the buyer’s insolvency, since a Letter of Credit is an absolute obligation of the bank to make payment irrespectively of the fact whether the bank has or does not have funds from the principal of the Documentary Letter of Credit. Therefore, a Letter of Credit ensures a higher degree of protection of the seller’s interests in comparison with payment upon delivery or via collection.
2. For the buyer, a Letter of Credit is convenient as it ensures a higher degree of protection of the buyer’s interests in comparison to an advance payment, and it also eliminates the risk of the seller’s negligence, as under a Letter of Credit among other instruments, certifying documents issued by independent third parties e.g. a chamber of commerce and industry, an insurance company, or an independent surveyor will also be required.
3. The Uniform Customs and Practice for Documentary Credits, which gained worldwide recognition and clearly determine and delineate the obligations of the parties of a Letter of Credit, protect the interests of the principal or of the beneficiary. Thus, a Letter of Credit is the obligation of the bank as an independent arbiter, which performs payment with the observance of all conditions of the Letter of Credit irrespective of the possible disputes between the parties under the contract.
The principle of autonomy and independence of a Letter of Credit from a contract is fundamental.
To be noted prior to choosing a Letter of Credit
It is important to clearly determine the conditions of the Letter of Credit: type, terms of payment, list and characteristics of documents provided by the recipient of costs, and requirements for execution of the mentioned documents, closing date and period of documents provision.
Payment mechanism:
1. The importer (buyer) has a guarantee that the bank will not perform the payment at its expense until it receives the documents in accordance with the conditions of the Letter of Credit and makes sure that such documents are delivered to satisfy the importer’s requirements.
2. Banks will refuse payment of documents at the importer’s expense if the documents for the goods do not comply with the terms of the Letter of Credit, thus protecting the importer’s interests.
3. The seller can be confident of receiving the payment as soon as it provides the bank with the documents meeting the requirements of the Letter of Credit.
4. The seller receives immediate payment (on presentation, unless the Letter of Credit stipulates other terms of payment) against the shipment documents, agreed in the terms of the Letter of Credit.
5. Required documents normally include documents of title/shipping documents, such as bill of lading (master’s receipt), waybill, duplicate of railroad waybill, which confirm shipment of goods according to the enquiries and specification of the buyer.
Settling accounts via a Letter of Credit usually works in the following pattern:
1. The exporter and importer agree on issuing a Letter of Credit (the method of payment being the Letter of Credit).
2. The importer (buyer), upon the consent of the exporter (the seller) asks its bank to issue a Letter of Credit. The importer’s bank (issuing bank) thus undertakes to pay to the exporter a fixed sum, provided that the exporter provides the documents meeting the terms of the Letter of Credit within the specified period of time.
3. The issuing bank notifies the exporter’s bank on the establishment of the Letter of Credit.
4. The exporter’s bank (notifying bank) notifies the exporter that the Letter of Credit was issued in its favour.
5. The exporter ships the goods, prepares the required documents and forwards them to its bank for presenting to the nominated bank.
6. The nominated bank checks the documents, and if they meet the terms and conditions of the Letter of Credit, the bank releases to the exporter the sum of the documents presented, but not exceeding the total amount of the Letter of Credit.
7. The nominated bank forwards the documents to the importer’s bank for further provision to the importer, who may use them now for receiving goods.
General advantages of a Letter of Credit
1. A Letter of Credit is a very flexible payment instrument, which can be used for settling accounts on the most diverse transactions between clients.
2. A Letter of Credit is an instrument are universal and recognized almost all over the world, and the rules of use are determined by a renowned international organization. It is beneficial for both clients and banks, as each participant of a transaction has a clear understanding of its rights, obligations, and standard requirements applied to all participants of the operation.
3. A Letter of Credit is convenient as a short-term financing instrument.

Advantages of a Letter of Credit for importers:
1. A Letter of Credit may be established at the expense of the client’s own funds, funds loaned by the bank, as well as upon the client providing other security for fulfillment of its obligations (pledge, deposit etc.).
2. Payment is made following shipment of goods and provision of documents.
3. The Importer determines the list of documents against which payment will be performed.
4. A Letter of Credit limits the period of documents submission and of goods shipment.
Advantages of a Letter of Credit for exporters:
1. The obligation of the bank establishing a Letter of Credit is added to the buyer’s obligation to make a payment, and the obligation of the bank is independent from the relations between the seller and the buyer.
2. If a Letter of Credit is confirmed, there is a guarantee of payment from the other bank.
3. Fulfillment of the conditions of the Letter of Credit guarantees payment.
We offer the whole scope of services related to transactions with Letters of Credit.
The advantages of our services are:
1. A wide choice of international banks and non-bank financial organizations; we work with these banks directly without intermediaries.
2. Banks would not establish a Letter of Credit without 100% security of funds at the bank account, or a credit line, within which a Letter of Credit can be established, without the relevant security. Clients being legal entities mostly cannot obtain credit resources in banks due to imperfect business transparency, stiffening of bank requirements and client assessment criteria, and absence of sufficient capital in banks themselves.
3. We guarantee to our clients financial instruments without the relevant sufficient pledges required in all banks.
4. Provision of financial and economic indices and company balance sheets is not required.
5. We do not demand from our clients cover for the mentioned financial instruments, the client pays only the commission for establishing a financial instrument.
6. The amount of commission is considered individually for each client and depends on the category of a bank and the par value of a financial instrument, the currency depends on the currency of a financial instrument.
7. The par value of financial instruments comprises EUR or USD 500,000 – 100,000,000.
8. We establish financial instruments within 3-5 banking days following payment of the commission.
9. All confirmations and notifications are done only via SWIFT.
10. Financial instruments are established only following payment of the commission with cash.
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Skype: pol.tam.itc.ltd,
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