The relevance of a documentary letter of credit can’t be overemphasized. For countries that speak different languages, have different laws and practice different cultures there is bound to be distrust. Since most exporters ship their goods before receiving payment, to curb the risk involved in not getting paid, the documentary letter of credit stands as a guarantee that goods and services exported will be paid for. The documentary letter of credit makes international trading easier and more convenient. It gives assurance to the exporter who now exports his goods even without receiving any payment receipt. The signed DLC ensures the exporter is paid by the bank even if the buyer defaults.
Builds Trust
This is one great benefit of making use of a documentary letter of credit. Since both the buyer and seller are in different countries, the seller has no information about the financial status of the buyer, the buyer has no idea if the goods he is expecting are of good quality. The DLC ensures both parties can trust each other to fulfill their end of the agreement.
Risk Reduction
The bank’s involvement states in clear terms what both parties agree on. and so as soon as all obligation is fulfilled the seller gets his pay. This drastically reduces the risk of the exporter not getting his pay and enhances a good relationship. Once the exporter gets a DLC he is assured that the buyer can make payment and so he sends his goods even without receiving payment receipt.
No Room for Excuses
Another benefit of the DLC is the fact that there will be no room for part or late payment, or even late delivery. Unless not stated on the DLC. Also, depending on the if stated categorically in the agreement, the seller may or may not get a full payment if the quality of the product supplied is confirmed to be bad.
Credible
A documentary letter of credit creates room for a higher level of credibility to both the exporter and importer. If both parties wish to expand their businesses with other countries they will be at an edge.
Guaranteed Payment
One of the most important benefits of the documentary letter of credit is that it guarantees the seller’s payment, as payment is not depending on the buyer but depending on the fulfillment of all agreement stated in the DLC. Such that if any dispute comes up during the period of the transaction, it can be easily settled.
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