USING DOCUMENTARY LETTERS OF CREDIT AND COLLECTIONS
A guide to help you minimise risk and smooth the international trade process

Trading internationally can bring rewards, it also involves risk.

Exporters must ensure that they are paid for the goods provided. Importers need to ensure they receive the correct goods they have paid for.

Barclays offers individual solutions to help you manage these risks and trade confidently overseas. This guide focuses on two key solutions: Documentary Letters of Credit (or 'LCs') and Documentary Collections (or 'Collections').

The diagram illustrates the four principal methods of payment available to Exporters and Importers and the different levels of risk associated with each one.

The method of payment you use will depend on a variety of factors including track record, bargaining power and the level of trust between both parties.

Open Account
Trading on open account, where the Importer pays for the goods after receiving them, is the most beneficial payment term for the Importer since they can inspect the goods and ensure they are satisfied with them before authorising payment. With this arrangement, Importers will need to have a good track record of payment and the risks associated with the Importer's country would typically be low or negligible. Open account trading carries a risk of Importer default, which can be mitigated by the use of credit insurance.

Cash in Advance
Payment in advance means the Importer pays for the goods in advance of receiving them from the Exporter. This is the least favourable payment term for the Importer and they therefore have to be confident that the Exporter will deliver the correct goods, on time and to an acceptable quality standard.

Documentary Letters of Credit
Using Letters of Credit (LCs) is an established and well-recognised means of helping Exporters and Importers to ensure that their trading activities proceed smoothly. LCs give Importers control over the terms of trade and are used as a means of guaranteeing a trade debt. Exporters are guaranteed payment (providing terms are met), without their credit limits being affected.

Documentary Collections
Collections offer a fast and efficient means of collecting trade payments for Exporters and an equally effective means of settling trade debts for Importers.