Letter of credit

Definition of documentary credit

The documentary credit is a form of foreign payment transactions in which the importer's bank gives an im Letter of credit named exporter promises a certain service against delivery of the necessary documents.

Documentary credit service

This performance can e.g. B. in a payment by the import bank as the opening bank or by the export bank as the confirming bank. Depending on the design, the service can also consist of an acceptance service from one of the two banks or the purchase of the documents by the import or export bank.

The legal basis is usually the uniform guidelines and customs for documentary letters of credit (ERA) recognized by all states.

According to the sales contract between the importer and the exporter, the importer issues a letter of credit order as an agency order to the letter of credit bank.

Types of letter of credit

  • Sight and forbearance credit
  • Revocable and irrevocable letter of credit
  • Confirmed and unconfirmed letter of credit
  • Revolving and non-revolving letter of credit
  • Counter-credit
  • Advance credit

Contents of the letter of credit

  • Letter of credit amount and currency
  • Documentation of the letter of credit
  • Type, quantity and price of the goods
  • delivery terms
  • Loading deadline
  • Duration of the letter of credit


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