documentary letter of credit


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documentary letter of credit

Used somewhat like cashier's checks,but with more safeguards.The typical documentary letter of credit will allow payment to a vendor upon the vendor's presentation of the letter and certain documents, such as proof the goods were placed on board a vessel for shipment to the United States.

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A documentary letter of credit (LC) will require a transport document as proof that the exporter has sent the required goods in the manner agreed upon between the buyer and seller.
Unfortunately, many bankers who--as a standard practice--will not issue without requiring an OBL as evidentiary documentation, will, at the same time, counsel their applicant clients that it is perfectly fine to issue a documentary LC in "F" term or "E" term format--which essentially does violence to the intention of the documentary Letter of Credit in the first place.
* Ask this new customer to arrange for its bank to issue a documentary letter of credit. A documentary L/C substitutes the creditworthiness of the issuing hank for that of the buyer.
Trade creditors seeking protection from the credit risk of a Chapter 11 debtor or financially troubled customer could push for third party protection, such as the posting of a standby or documentary letter of credit. However, letters of credit may not be available where the debtor lacks availability on its line of credit or its lender refuses to permit the opening of such letters of credit in favor of the debtor's suppliers.
In this regard, both EX-IM Bank and SBA often require the export sale to be covered by a documentary letter of credit or export credit insurance, particularly when buyers reside in a developing country.

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