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|