When does the seller or the buyer choose to settle in documentary credit?
For the seller:
(1)It is the first time for the seller to cooperate with the buyer so that the seller worries about the buyer’s creditworthiness;
(2)A documentary credit is based on the bank’s credit, protecting the collection of proceeds;
(3) The seller with a lack of working capital could be funded under a documentary credit.
For the buyer:
(1)The credit of the buyer is replaced by that of the bank, enhancing the possibility of a successful deal;
(2) Depending on the buyer’s creditworthiness, a documentary credit can be issued by a bank with or without cash collateral, thus reducing the funds tied up in the business;
(3)The buyer with a lack of working capital could be funded under a documentary credit.