A documentary credit (D/C) enables an exporter to offer the importer deferred payment. The exporter and importer must negotiate the terms and conditions of the documentary credit, including the expenses that the importer will bear.
The exporter and importer must agree on the following:
- The rate of interest that the importer will pay on the deferred payment
- The length of the credit period and the payment dates
Danske Bank’s role
The importer’s bank issues the documentary credit at the request of the importer. Danske Bank makes a financial commitment to the exporter and accepts the documentary credit issued by an acceptable bank. A guarantee from an export credit agency may also be required.
Documentary credits entail the following expenses
- Margin, management and commitment fee
- Documentary credit charges
- Guarantee premium to an export credit agency, if applicable.
Exporters should be aware that they bear an interest rate risk from when the contract is signed with the importer until Danske Bank finances the documentary credit. Exporters can also arrange with Danske Bank to cover this interest rate risk.