DLC is the most widely used instrument in international trade to mitigate financial risk, especially, in a higher amount of transactions. It protects both seller and buyer; the seller gets the payment and the buyer gets the goods. DLC is issued by a financial organization on request of the buyer, providing payment assurance to the seller once all the terms of the agreement are met.
A seller can ask for a BG when he is no sure about the payment form the buyer. BG is a surety bond from the bank where a financial institution also verifies the financial stability of the buyer. It’s a more suitable financial instrument for small buyers or SME’s who can prove their financial health through a bank guarantee. New entrants in the market who wants to do business with corporate clients.
The buyer provides a shipping guarantee. This indemnifies a shipping company, enabling the shipping company to release the indemnified goods to the buyer without a bill of lading. This allows the goods to be collected without the shipping documents, enabling the buyer to reduce delays and save on storage costs.
What is DCS? The exporter requests its bank for payment by presenting export documents, the exporter‘s bank will forward these documents to the importer’s bank. The collecting bank releases the documents once the importer clears the payment. Finally, the importer’s bank sends payment to the exporter’s bank which is then credited to the exporter’s account.