Documentary payments are a way to ensure that the exporter, through documents, retains control of the goods until they are paid for. This is de facto payment against the goods, usually against the documents of title that represent the goods, or against the release of the goods to the importer.
Documentary payments minimise the commercial risk and, as high quality payment instruments, provide the opportunity to obtain more favourable pricing conditions.
Documentary Letter of Credit
A letter of credit is a written obligation by the bank issuing the letter of credit, upon request by the client (principal, buyer, applicant), to provide a specified person (the recipient of the letter of credit, the beneficiary, the seller) with a specified performance, if the beneficiary of the letter of credit fulfils the conditions of the letter of credit stipulated by the principal within a certain period of time.
With a documentary credit, unlike with a documentary collection, the bank is under obligation.
A documentary collection is a form of payment where the issuing of commercial documents and potentially the release of goods is conditional upon payment, the acceptance of financial documents or the fulfilment of other conditions by the importer (customer, drawee).
A documentary collection is always a payment obligation for the importer, not for the bank.
Česká exportní banka handles documentary credits exclusively subject to ICC rules as stipulated in UCP 500 or UCP 600 and documentary collections subject to URC 522.
Letters of credit (export as well as import) and documentary collections (export as well as import) are prepared by Czech Česká exportní banka, primarily in connection with the provision of supported financing:
- With provided export financing in the form of direct credits to the exporter or a foreign entity on the basis of a concluded credit contract;
- With provided financing for export-based production in the form of direct credits to the exporter or the manufacturer; or
- With provided bank guarantees.