Why Importers Rely on Documentary Letters of Credit

Suppliers often require guaranteed payment before shipping goods. A Documentary Letter of Credit (DLC) from a top-tier bank assures exporters that payment will be made upon presentation of compliant shipping documents—eliminating advance cash outlays and strengthening your negotiating position.

How to Secure an Irrevocable DLC for Importing Goods

1. Define Transaction Terms
   Determine Incoterms, shipment value and required documents (bill of lading, commercial invoice, insurance certificate).
2. Select an Issuing Bank
   Partner with a bank familiar with your supplier’s jurisdiction—global or local branches of prime banks minimize processing delays.
3. Structure Collateral
   Provide 10–20% cash margin, rated securities or third-party guarantees in lieu of full cash collateral to optimize working capital.
4. Submit L/C Application
   Supply your bank with the sales contract, corporate financials, KYC documents and collateral agreement.
5. Confirm with Beneficiary
   Issue an MT 700 instruction; if required, add a confirmation from a correspondent bank to back the DLC.
6. Review & Release
   Upon receipt of compliant documents, the issuing or confirming bank pays the exporter and notifies you for reimbursement.

Optimizing Collateral and Preserving Liquidity

Tying up 100% of L/C face value in cash reduces your ability to fund operations. We negotiate collateral alternatives:

• Partial Cash Margin: 10–20% cash deposit, with the remainder backed by bank credit lines.
• Rated Securities: Use investment-grade bonds or commercial paper in lieu of cash.
• Third-Party Guarantees: Equity partners or insurer wraps can stand in for collateral.
• Revolving L/C Facilities: Establish a seasonal or multi-shipment line to cover multiple imports under one ceiling.

Types of Letters of Credit for Importers

• Sight DLC: Immediate payment upon document compliance.
• Usance DLC: Deferred payment (30–90 days) to match your cashflow needs.
• Transferable DLC: Allows your suppliers to pass credit support to sub-suppliers.
• Confirmed DLC: Adds a second bank guarantee for high-risk jurisdictions.

Mitigating Letter of Credit Risks

• Document Discrepancies: Use checklist-based reviews to prevent payment delays.
• Sanctions & AML: Screen all parties against sanctions lists and regulatory databases.
• Currency Fluctuations: Hedge FX exposure with forward contracts to lock in cost of goods.
• Political Risk: Supplement with political-risk insurance for imports from emerging markets.

Frequently Asked Questions on Import L/Cs

How do I apply for a Letter of Credit?
Complete an L/C application with your bank, providing the sales contract, shipment details, KYC and collateral documents.

What collateral is required?
Standard practice is 10–20% cash margin or rated securities; third-party guarantees can reduce cash needs.

How long does it take to issue an L/C?
With complete documentation, prime banks can issue within 3–5 business days.

Can I negotiate payment terms?
Yes. Usance L/Cs defer payment 30–90 days; structuring a revolving L/C can cover multiple shipments under one line.

Get Started with Documentary Letters of Credit

Contact FG Capital Advisors to discuss tailored import finance solutions, optimize collateral and strengthen supplier relationships. Email contact@fgcapitaladvisors.com.

Disclaimers & Important Considerations

FG Capital Advisors provides advisory and arrangement services only. Letter of Credit issuance depends on bank underwriting, regulatory approvals and collateral availability.

Importers should seek independent legal, trade compliance and tax advice to review L/C terms, customs requirements and jurisdictional regulations before proceeding.