About letters of credit and import collections
Important
This content is archived and is not being updated. For the latest documentation, see Microsoft Dynamics 365 product documentation. For the latest release plans, see Dynamics 365 and Microsoft Power Platform release plans.
Applies To: Microsoft Dynamics AX 2012 R3, Microsoft Dynamics AX 2012 R2, Microsoft Dynamics AX 2012 Feature Pack, Microsoft Dynamics AX 2012
Letters of credit and import collections are bank documents that are commonly used for the purchase and sale of goods across international borders.
Letters of credit
Letters of credit are used for international transactions to ensure that payments will be made. A letter of credit is an agreement that is issued by a bank, in which the bank agrees to ensure payment on behalf of the buyer, if the terms of the agreement between the buyer and seller are met. Note that a letter of credit is also referred to as a documentary credit (DC).
For an import letter of credit, the legal entity is the buyer or the applicant for the letter of credit. For an export letter of credit, the legal entity is the seller or the beneficiary of the letter of credit. The following parties are involved with a letter of credit:
The applicant (buyer) who intends to pay for the goods.
The beneficiary (seller) who will receive the payment.
The issuing bank that issues the letter of credit.
The advising bank that carries out the transaction on behalf of the applicant.
The letter of credit includes a description of the goods, any required documents, the date of shipment, and the expiration date after which payment will not be made. The issuing bank collects a margin for the letter of credit.
A letter of credit can be Revocable or Irrevocable. The nature of a letter of credit can be Transferable, Non transferable, or Revolving. Typically, a letter of credit is an irrevocable and confirmed agreement that payment will be made to a specific beneficiary upon submission of complete and accurate shipping documentation.
Import collection
An import collection is an agreement between the bank and the exporter (seller) to deliver the shipping documentation to the international importer (buyer) through the bank. The bank is expected to deliver the shipping documentation upon receipt of payment for the shipped goods in cash or a signed draft towards the payment.
An import collection ensures payment to the seller when the buyer collects the shipping documents to take delivery of the imported goods.
See also
Key tasks: Letter of credit or import collection for the import of items
Key tasks: Letter of credit for the export of goods