Letters of Credit / Documentary Credit

This is a credit facility that enables both the local and international trader(s) to conduct business transactions through risk minimization. It involves trade financing against trade documents/goods.

When to use an LC:

• The product is available to trading clients for both exports and local trade.
• A new trade relationship
• Concern over the creditworthiness of the buyer
• Concern over seller’s ability to perform
• Potential economic or sovereign risk in the buyer’s country
• Legislation in the buyer’s or the seller’s country
• Foreign exchange regulation or other authority regulation
• Considerable geographic distance or a commonly used trade practice
• Large projects or special products made to order