Documentary credit - securing international trade transactions

Last update

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.
Luxembourg businesses may also resort to the credit insurance and export support measures offered by the Office du Ducroire.

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.
If no documentary credit is used, the exporter may turn to the COD collect on delivery system (also referred to as counter-repayment): the COD is a written document requesting from the transporter only to deliver the merchandise in exchange for payment.

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.

The buyer and seller can also carry out the transaction via a stand-by letter of credit which enables the bank to either compensate the beneficiary (buyer) or pay the seller if the debtor does not settle his obligations.

Related procedures and links

Your opinion matters to us

Tell us what you think of this page. You can leave us your feedback on how to improve this page. You will not receive a reply to your feedback. Please use the contact form for any specific questions you might have.

Fields marked with an asterisk (*) are mandatory.

Did you find what you were looking for?*
How would you rate this page?*
Very poor
Very good

Leave a comment to help us improve this page. Do not provide any personal information such as your email address, name, telephone number, etc.

0/1000

Please rate this page

Your opinion has been submitted successfully!

Thank you for your contribution. If you need help or have any questions, please use the contact form.

Would you like to help us make digital public services more user-friendly by submitting your suggestions for improvement?

Then visit Zesumme Vereinfachen, the online participation platform dedicated to administrative simplification in Luxembourg.

Let's simplify things together

An error occurred

Oops, an error has been detected during your form processing.