How to Apply for Documentary Credit

Also known as a letter of credit, documentary credit is a letter issued by a bank to a seller. The letter serves as a guarantee that the buyer will make his or her payment for a purchase on time and in the correct amount. Documentary credit is essential in international business transactions between exporters and importers. This type of documentation is mainly used to foster trust and confidence in business deals through the intervention of an issuing bank.

Instructions

1

Finalize the terms of the sale agreement with the seller.

2

Go to your bank and apply for documentary credit or a letter of credit. Ask to have any terms of the contract between yourself and the seller written into the letter for easy reference and to avoid later discrepancies and/or disagreements with the transaction.

3

Thoroughly read the documentary credit letter prepared by your bank. The letter should include pertinent details about your transaction, such as the the shipment of the products.

4

Check with your bank to confirm that your documentary credit letter has been processed. Your bank, known as the issuing bank, will send the documentary credit to the seller's bank and request a confirmation.

5

Wait for confirmation from the seller. The seller will contact the freight forwarder to validate the shipping date as well as carry out the terms stipulated in the contract.

6

Pick up the letter of confirmation for the merchandise you bought that should have been sent to your issuing bank. The confirmation letter sent to your bank literally means the shipped merchandise was received at the designated location spot within the agreed upon port or airport customs department. Verify from your issuing bank if you still need additional documents to comply with the terms of the documentary credit.

7

Comply with any final requirements and pick up the merchandise from the customs department.