Strategic Management of Finance and Role of Documentary Credit

Abstract

Financing is one of the most important aspects of trade. International trade, although seemingly not different from local trade, differs from local trade because shipment/delivery takes longer, and different documentation and legislation is due to different countries involved in international trade. Financing also differs compared to local trade, and there are some specific methods used in international trade like documentary credit, although there is no limitation for documentary credits to be used in local trade. Documentary credit is a well-known method generally used in international trade. This chapter aims to define the role of documentary credits in international trade finance. In this chapter along with other finance methods, documentary credits, types, process will be explained. It is aimed to help importers and exporters how to mitigate the potential risks by using documentary credit. Furthermore, which type of documentary credit is to be used depending on the situation is clarified.