Documentary credit enhances working capital management for the seller and buyer
Export documentary credit is a payment method where buyer's bank undertakes to pay the seller provided that the terms of the documentary credit are met. It is a safe and quick payment method because payment is not dependent on the buyer's payment capacity at the time of payment. It is also an efficient way to minimise both parties' risks relating to the term of payment.
A documentary credit is especially well suited when you do not know the counterparty well or the transaction concerns goods manufactured to order. Documentary credits are also often used when there is a large geographical or cultural distance between the business partners.
As documentary credits are irrevocable, you can be certain of payment in advance and plan your company's production well ahead.
By using a confirmed documentary credit you can also do business in riskier countries.