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About the DLC

A Documentary Letter of Credit (DLC) is a type of financial instrument used to pay for goods being ordered. The DLC has terms and conditions applied. The end buyer issues a DLC to supplier and if all conditions are met the supplier can obtain collection of funds. By default a DLC becomes an irrevocable Letter of Credit. The best form of DLC issuance are confirmed and irrevocable (CIDC). The CIDLC is guaranteed by the issuing bank and not the buyer.

In other words the bank is saying to the supplier “we don’t care what the end buyer says, you the seller have met the condition of the CIDLC, we the bank will guarantee payment for the goods ordered”. The intermediary should never accept a Revocable Letter of Credit as it can be modified or even canceled by the buyer without notice to the intermediary. The payment instrument should be A Pre Advised “IRREVOCABLE” DLC. The operative word here is “IRREVOCABLE”.

Once the conditions of the Pre Advise has been met the DLC becomes active and the buyer cannot change his mind and cancel the DLC. With a revocable DLC he can. As to transferable DLC; it may be transferred to more than one supplier but can only be transferred once. Hence, one supplier gets xx% of the TDLC and another supplier gets yy% of the same TDLC but once transferred to the suppliers it cannot be transferred again.

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