Demand Letter of Credit
A Demand Letter of Credit (DLC) is a financial instrument issued by a bank at the request of a customer (usually the buyer or the applicant) in favor of a beneficiary (usually the seller or the exporter), guaranteeing payment upon presentation of specified documents proving that the terms of the underlying transaction have been fulfilled.
Letter of Credit - offered from Multiple Corporate offering / Banks
Nature of the Instrument:
A DLC is a type of documentary credit that is payable immediately upon the beneficiary's compliance with the terms and conditions set forth in the credit. Unlike a traditional letter of credit which might involve a deferred payment or a time-bound payment, a DLC is payable on demand.
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Payment Trigger:
The payment under a DLC is triggered by the beneficiary's presentation of compliant documents that meet the terms outlined in the credit. These documents typically include invoices, shipping documents, certificates of origin, and any other documents specified in the credit.
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Types:
There are variations of DLCs, such as Standby Letters of Credit (SBLCs), which serve as guarantees of payment if the applicant fails to fulfill their obligations. However, a standard DLC operates specifically on a demand basis, meaning payment is triggered upon proper presentation of documents, regardless of the performance of the underlying transaction.
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Usage:
DLCs are commonly used in international trade to facilitate transactions where the parties may not have a longstanding relationship or where there are concerns about the creditworthiness or performance of the buyer. They provide assurance to the seller that payment will be made once the shipment or delivery has been completed as per the agreed terms.
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Bank Involvement:
As with all letters of credit, DLCs involve a bank acting as an intermediary and guarantor. The bank issuing the DLC undertakes to make payment to the beneficiary upon proper presentation of documents, ensuring that the seller receives payment even if the buyer defaults.
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Cost and Fees:
Banks typically charge fees for issuing DLCs, which may include issuance fees, negotiation fees, and possibly confirmation fees if the DLC is confirmed by another bank. These fees are usually borne by the applicant (buyer) unless otherwise agreed.
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In summary, a Demand Letter of Credit provides a secure method of payment in international transactions by guaranteeing immediate payment upon compliance with specified terms, thereby reducing the risk for both buyers and sellers involved in cross-border trade.
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The Corporate Offer available for Demand Letter of Credit with the following Banks / Financial Institutions:
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​​Asia Pacific Investment Bank Habib Bank NA Zurich BNP Paribas SA UCO Bank
ACE Investment Bank Lloyds Banking Group Society General Bank PLC SCB, HK China Construction Bank Corporation UBB Investment Bank Suisse Bank PLC HSBC, HK
OCBC Wing Hand Bank Wells Fargo Bank NA DBS Bank Limited, HK HSBC Bank PLC,
Important Terms and Conditions:​
1) The applicable fee always differs between 5.50% to 10.00% depending on the transaction, Face Vale, Country, Client's Profile and so on.
2) All the payments are payable to the Participating Bank / Corporate Issuer as per Invoice
3) The client must submit the copy of Sales Purchase agreement signed copy, or if any specific verbiage / format to be issued
4) The client should disclose correct information to manage and support long term relationship basis.
5) Minimum Face Value between $ 0.50 Million to $ 200 Million