DLC( Documentary Letter of Credit)

A letter of credit is a very important financial instrument to meet the short- term needs which allows its recipient to obtain the necessary credit for financing his project with hope of generating enough return from it to settle the due amount in the given time frame. Similar to other types of debt instruments, usance letters are open to advance settlement on the behest of recipient and usually without attracting a penalty.

The letter of credit specifically states which documents and information are required by the beneficiary upon presentation, including the date and place the letter expires. By submitting a compliant presentation, the letter of credit provides the beneficiary the requisite guarantee assuring them to be paid if the required conditions for document delivery have been met.

The letter of credit specifically states which documents and information are required by the beneficiary upon presentation, including the date and place the letter expires. By submitting a compliant presentation, the letter of credit provides the beneficiary with a guarantee that they will get paid as long as certain documentary delivery conditions have been met.

The bank which writes a letter of credit on behalf of the buyer (applicant) must now make sure the conditions for all documentation under the credit are duly met with before paying the supplier. Letter of credits are usually governed by the rules of the International Chamber of Commerce (ICC). The specific rules for letters of credit are known as the Uniform Customs and practice for documentary Credit (UCP). The version currently in effect is UCP600, since July 1st, 2007.

The parties to a letter of credit are the supplier (beneficiary), the issuing bank, of whom the buyer (applicant) is a client, and usually an advising bank, of whom the beneficiary is a client.