A documentary credit or a letter of credit is usually used to finance international trade. Judges have referred to documentary credits as the “life blood” of international commerce. It is the bank's obligation to pay the seller of goods or services a certain amount of money in the timely submission of documents confirming shipment of goods or performance of contractual services.
The Documentary credit is considered a separate contract than the underlying sales contract under the principle of Autonomy. It is the key principle controlling the documentary credits thereby promising business efficiency of documentary credits since centuries. Documentary Letter Of Credit is one of the most important means of financing in the international trade, as the letter of credit is a tool that removes most of the risks as from the importer and from the exporter. Documentary Letter Of Credit is very flexible and convenient tool for calculations, which have the widest recognition and acceptance in the world.
Different kinds of Documentary Letter of Credit: -
Revocable: - In revocable documentary credit, the bank can, at any time, adjust or withdraw the documentary credit on its own wits or at the request of the buyer and shall not involve any liability by the bank towards the beneficiary. A letter of credit is revocable if its text does not explicitly state otherwise.
Irrevocable: - An irrevocable documentary credit constitutes a definite undertaking by the bank which is conclusive and direct towards the beneficiary. An Irrevocable letter of credit guarantees that the exporter will make payment to the performance of its obligations, even if an importer wants to abandon the deal. The bank, therefore, cannot amend and withdraw the irrevocable documentary credit under any circumstances.
The autonomy of the documentary credit can, therefore, be treated as a gain in international deals as it serves as a business security to parties in international trade based in different countries. The Core management team at Yield 4 Finance has a blend of Educational as well as Professional experience. We understand the need of our clients and arrange finance which suits them.