Documentary Credit (DC)

Are you looking for a safe and secure way to settle your international trade transactions? Would you like to ensure the supplier has fulfilled all the terms and conditions before you make any payment? If your answer is yes, then a Documentary Credit (DC)/Letter of Credit (LC) is the right product for you.

A DC is an undertaking by a bank (issuing bank), on your behalf (applicant), to make payment for goods or services provided by the supplier (beneficiary) within a prescribed time limit and against stipulated documents. It's all up to you - you set the time, the place and the documents required to evidence that your terms and conditions have been met. Sounds like a lot? Don't worry, HSBC can help by suggesting common clauses and best practices.

How DCs Work

After you complete your DC issuance instructions, HSBC will take care of all the paperwork for you. We will check all the documents that come in against the terms and conditions you set, against the UCP500 rules and for internal consistency. Only when we're satisfied that the documents comply with the terms and conditions in your application do we pay the supplier. Upon settlement of the documentary transaction or acceptance of discrepancies, we will release the trade documents/goods to you and pay the supplier on your behalf. In this way, both you and your supplier's interests are protected.

Cash Flow Implications

Documentary Credits can also be used to improve your cashflow. Use DCs in the place of deposits and advances financed by import loans, overdrafts or your own cash reserves. The security of an HSBC guaranteed payment may also enable you to increase the credit period the supplier is willing to extend to you. With the financial strength of HSBC, DCs issued by us will be universally accepted, both by your vendors and their bank, as payment assurance.

New Business Opportunities

Expand your business with new opportunities made possible by DCs.

New business partners:

Structured and clearly defined terms and conditions in the DC can provide the peace of mind necessary to do business between unfamiliar business partners. You can also strengthen your negotiating position by offering a guaranteed payment.

New countries

Some countries require settlement by DC due to import and/or foreign exchange controls.

Different Types of DCs

There are different types of DCs and to find out more about them and which one you should use, try our quick reference DC comparison table.

A Final Point

Documentary Credits can be either irrevocable or revocable. Revocable credits mean that the buyer can unilaterally change/cancel it after issuance. Understandably, suppliers generally refuse to accept revocable credits and virtually all DCs today are irrevocable. As a policy HSBC in Sri Lanka does not issue revocable DCs.