Documentary Letters of Credit (DLC): Securing Trade Payments with Confidence
Documentary Letters of Credit (DLC): Securing Trade Payments with Confidence
A Documentary Letter of Credit (DLC) is a payment guarantee issued by a buyer’s bank that ensures the seller will receive payment once agreed shipping and commercial documents are presented.
When two companies from different countries want to trade, trust becomes a hurdle. A Documentary Letter of Credit (DLC) solves that. It guarantees that the seller will get paid—if they follow the terms. That’s why it’s one of the most widely used instruments in global trade.
How a DLC Works
- Agreement: The buyer and seller agree to use a DLC for payment and define the terms in their contract.
- Issuance: The buyer applies through their bank to issue the DLC. The bank sends it to the seller’s bank (called the advising bank).
- Shipment: The seller ships the goods and collects the documents (bill of lading, invoice, insurance certificate, etc.).
- Document Presentation: The seller submits these to their bank, which forwards them to the issuing bank.
- Examination and Payment: If the documents match the DLC terms, the issuing bank releases payment to the seller.
Key Benefits of Using a DLC
- Payment Security: Sellers are paid only when conditions are met, reducing risk.
- Control for Buyers: Buyers only pay when goods are shipped and documents are submitted properly.
- International Credibility: DLCs are governed by global standards (UCP 600).
Common DLC Types
- Irrevocable DLC: Cannot be canceled or changed without both parties' agreement.
- Confirmed DLC: A second bank adds its guarantee to the payment.
- Sight LC: Payment is made immediately upon document presentation.
- Usance LC: Payment is made at a later date (e.g. 60 days after documents).
- Transferable LC: Can be transferred to another beneficiary (used by intermediaries).
- Back-to-Back LC: Used by traders who use a DLC from a buyer to issue one to their supplier.
DLC vs SBLC: What’s the Difference?
A DLC is a primary payment method. It is triggered by documentation proving shipment. An SBLC is a contingent payment guarantee —only used if something goes wrong. Both are powerful, but they serve different roles in trade finance.
Documents Typically Required Under a DLC
- Commercial Invoice
- Bill of Lading
- Packing List
- Certificate of Origin
- Insurance Certificate
- Inspection Certificate (if required)
What Can Go Wrong?
Most DLC issues come down to document discrepancies. Even minor errors (misspellings, wrong dates, missing certificates) can delay or void payment. That’s why many sellers work with advisors or checklists to get it right.
How Financely Helps with DLCs
We help clients secure and issue DLCs through global banks and private trade funds. Whether you’re a supplier who needs a confirmed DLC, or a buyer who wants to secure a transaction—we structure, negotiate, and deliver.
Need Help Issuing or Receiving a DLC?
We work globally with clients in trade, commodities, logistics, and infrastructure to structure clean, secure DLCs through top-tier institutions.
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