Businesses that are active in international trade can secure their import/export business transactions with a documentary credit (known as 'crédoc' in French).

With a documentary credit, the issuing bank guarantees:

• the exporter (seller) that payment of the exported goods will be made in exchange for the documents proving the specific merchandise has been shipped;
• the importer (buyer) that payment will only occur after the merchandise has been shipped according to the contractual agreement.

Who is concerned

The documentary credit requires the intervention of:

• the buyer (importer / ordering customer);
• the seller (exporter / beneficiary);
• the issuing bank (the buyer's bank) who commits to pay the exporter;
• where applicable, the advising or confirming bank (the seller's bank) will act as an intermediary between the issuing bank and the seller.

Prerequisites

In order to cover for the risk, the bank will usually request guarantees from the importer such as:

• the blocking of an amount equivalent to the documentary credit on a special account in order to guarantee that the account has sufficient funds on the anticipated payment date;
• the parent company or partners/shareholders acting as surety;
• or moral guarantees.

How to proceed

Sales contract

The seller and buyer will sign a commercial contract specifying the documentary credit under the terms of payment.

Taking out a documentary credit

The buyer will take out a documentary credit with his bank.

The buyer's bank will open and notify the documentary credit:

• directly to the seller;
• or to the seller's bank who will verify the authenticity of the documentary credit before informing its client.

Dispatching the goods

The seller will deliver the goods to the transporter and forward the mandatory documents (generally an invoice, insurance and shipping manifest / transport document):

• either directly to the buyer's bank;
• or to his own bank who will verify the documents before sending them to the buyer's bank.

Payment of the goods

The buyer's bank verifies the conformity of the documents received and transfers the payment to the seller.

The buyer then pays his bank in return for the documents.

Receipt of the goods

The buyer presents the documents to the transporter in order to take possession of the goods.