Revolving and non-revolving types of documentary credit. Most of the documentary
credits are non-revolving, meaning thereby that they are valid for one transaction only. A
revolving documentary credit is rarely issued.
Transferable credit. This type of credit permits the exporter to transfer a part or all of
the credit to a third-party.
Stand-by credit. It can be issued in favor of the importer in which case it constitutes a
deposit. If it is issued in favor of the exporter, it constitutes a guarantee of payment.
- Advantages and Disadvantages of Documentary Credit
The Letter of Credit represents a guarantee for future payment. The exporter knows
exactly as to when he would be recovering the amount due from the importer. The
security is quasi-total and there is no need for any extra credit insurance when an
irrevocable and confirmed Letter of Credit is used. However, the disadvantage is that the
procedure involves numerous administrative obligations and costs are high for small
transactions. At times, it is difficult to find a bank which will confirm a Letter of Credit.
- Required Documents
These documents are usual ones that are required in international trade. The documents
prove that the goods have been dispatched and are in conformity with the order.
Documents concerning goods. The bill made by the seller should contain a precise
description of goods as well as an indication of unit price, quantity, total price and
financial conditions of sale. Other documents are notes of weight, list of parcels (details
of goods per parcel) and the marks indicated on each parcel.
Documents concerning insurance. The insurance, whether F.O.B. (free on board) or
C.I.F. (cost, insurance and freight), should be specified in a manner so as to clarify if the
exporter has insured the goods during their transport. The insurance policy should
contain all the terms of the contract, such as:
- Names of the insurers;
- Nature of goods;
- The risks covered (all risks, fire, wreckage ...);
- Sum insured;
- Period of insurance.
Documents concerning the transport. They are generally bill of lading for sea
transport, a letter of transport if it is train or air or road transport.
Other documents. Other documents may be: