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Using documentary credits when you export goods or services means that the importer's bank commits itself to paying you when the conditions of the credit have been met. This offers a number of advantages:

 

  • Payment guaranteed by the importer's bank prior to shipment
  • Enhanced security of payment at the agreed time
  • Enhanced security that the order received will not be cancelled or changed without your agreement
  • Improved liquidity as payment often can be made shortly after shipment
  • Possibility of extending security to subcontractors through the documentary credit
  • The possibility of financing

It is important to note that the importer's bank will make payment only after you have complied with all its requirements and conditions. You should therefore examine the documentary credit carefully when you receive it.

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If you have to arrange security for your subcontractors or other parties, documentary credits offer the following options:

Irrevocable payment order
An irrevocable payment order assures third parties that money will not be paid to you before they received the amount due to them.

Be aware that payment orders are not subject to statutory regulations on debt. This means that, should you go bankrupt or suspend payments, an amount will be payable only after a court decision or arbitration.

Assignment
An assignment also ensures that third parties will be paid ahead of you.

Unlike an irrevocable payment order, an assignment is subject to statutory regulations on debt. This means that, in case of your bankruptcy or suspension of payments, an estate must respect the assignment if it is legally recorded and the debtor is notified.

Transferable documentary credit
If the documentary credit is issued as a transferable documentary credit, you can have it transferred, completely or in part, to a third party.

When you transfer a documentary credit, the following conditions can be changed:

  • the amount and any unit price can be reduced
  • validity, shipment and presentation limits can be shortened
  • any insurance percentage rate can be raised


When documents are presented under a transferred documentary credit, it is possible for the beneficiary to replace the invoices and any drafts with its own. If the terms of the documentary credit are met, the beneficiary will receive the difference between the two invoices (less the bank’s commission, if applicable) and the balance is then paid to the third party.

One of the main advantages of a transferable documentary credit is that the credit exposure lies with the third party. However, one of the main risks with transferring a documentary credit is that the beneficiary is forced to use the other documents presented by the third party. Consequently any mistakes in these documents might be repeated under the original documentary credit and this way part of the security in doing business with documentary credits can disappear.

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Trade & Export Finance products and services

Read More about our trade & export finance products and services in these booklets (PDF):

Download factsheet on Documentary Credits
Download factsheet on Int'l Guarantees
Download factsheet on Collections
Download factsheet on Business Online

To read PDF documents, download Adobe Reader®

Document Checklist
What to look out for in every document involved in the documentary credit process:

Danske Bank A/S, London Branch, 75 King William Street, London EC4N 7DT, United Kingdom. Telephone: +44 (0)20 7410 8000 Facsimile: +44 (0)20 7410 8001 E-mail: london.info@uk.danskebank.com. VAT number: 853 7590 92. Danske Bank A/S, London Branch is authorised by the Danish Financial Supervisory Authority (Finanstilsynet) and is subject to limited regulation by the the Financial Conduct Authority and the Prudential Regulation Authority. Complaints should be addressed to our Legal Department. Details on the extent of our regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from us on request. Registered Branch in England and Wales, Company No. FC011846, Branch No. BR000080. Danske Bank A/S, Incorporated in Denmark, CVR No. 61 12 62 28 Copenhagen. Our details can also be viewed on The Financial Services Register under Firm Reference Number 124655.

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