The Definitive Guide to Business Finance: What smart managers do with the numbers, Second Edition

Trade finance

The international departments of commercial banks have developed some nifty, and perhaps costly, techniques for financing foreign trade. The best known of these require the presentation of key documents (see inset) and as a result they are known loosely as documentary credits, letters of credit or LCs. The shorthand term DC is sometimes used, but this has a different meaning in the US.

Key documents of foreign trade:

• detailed invoice;

• bill of lading (a sort of shipping list providing terms of carriage, proof of ownership and a receipt from the shippers);

• insurance certificate;

• inspection certificate/s;

• customs papers.

When a bank issues a letter of credit, it is guaranteeing to release payment on presentation of the specific documents. ...