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A quick guide to the most common types of Documentary Credit (DC).
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In basic terms, a Documentary Credit (DC) is an undertaking by a bank to make a payment provided the terms of the DC are met. There are several types of DC – the main difference is that some are more suited to transactions involving middlemen or traders.
DC | Back-to-back DC | Transferable DC | Transferred DC | Standby DC | |
|---|---|---|---|---|---|
Specific to transactions involving traders | No | Yes | Yes | Yes | No |
Buyer requires credit facility to issue DC | Yes | Yes* | Yes | No | Yes |
Degree of freedom to specify terms of DC | High | Medium** | High | Low | High |
Supplier is guaranteed payment if terms are met | Yes | Yes | Yes | Yes*** | Yes |
DC issued on a transaction-by- transaction basis | Yes | Yes | Yes | Yes | No |
Degree of ease for supplier to obtain finance | High | High | High | Medium | High |
*Terms may be better due to support of Master DC
** Some terms to follow Master DC
*** If the terms of the Transferable DC are met
Disclaimer:
Global Trade Solutions transactions may be subject to credit approval. Other restrictions, including specific country regulations, may apply. Foreign currency exchange rates may apply to certain trade transactions.
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