Safeguard receipt of payment with a letter of credit

Documentary credits – or letters of credit - are a payment method to ensure that an exporter receives payment against presentation of credit conform documents.

Backed by the International Chamber of Commerce "Uniform Customs and Practice for Documentary Credits" (UCP600), documentary credits work as a safety net, having a bank to guarantee that the exporter will receive payment as soon as the terms of the documentary credit have been met.

Danske Bank has many years of experience in handling documentary credits. Through our global network of correspondent banks, we process documentary credits in almost any country in the world. 

How it works
By issuing the documentary credit, the importer’s bank assumes the payment obligation of the importer. Once the terms of the documentary credit have been met, the exporter has a claim against the issuing bank rather than against the importer. Usually, the documents and payment are handled by the exporter’s banking partner.

Documentary credits can also be used as a financing method, where the terms of the individual documentary credit may stipulate that the importer be granted a credit. This is a method securing the exporter payment on a fixed future date.

Requirement in some countries
In some countries, it is a statutory requirement that payment of imported goods takes place through a documentary credit. The reason for this can be that import licences and access to foreign currency are managed by the central bank of the country in question.

If you want to discuss your options on documentary credits, please contact us.

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