DEFINITION of 'Fully Funded Documentary Letter Of Credit - FFDLC'
A written promise of payment provided by a buyer to a seller that is guaranteed to clear by a particular bank. Once an FFDLC document is presented by the seller to the involved bank, the bank is obliged to remit full payment to the seller.
The seller may be required to fulfill certain conditions, such as providing proof of shipment of the goods sold to the buyer, before collecting payment from the bank. This method of payment provides assurance to the seller that the buyer has the necessary funds for the transaction and ready for remittance to the seller upon completion of the sale.
BREAKING DOWN 'Fully Funded Documentary Letter Of Credit - FFDLC'
This type of payment arrangement is typically useful in the context of international transactions. For example, an American consumer electronics distributor may be purchasing $500,000 worth of stereo equipment from a Chinese manufacturer. Since the two companies are so geographically distant from each other, each wants surety of the deal's completion before performing their part of it.
So, the seller can be assured the buyer has payment by receiving notice of an FFDLC, as the document proves that the buyer has transferred the $500,000 in cash to the bank involved, who then holds the funds for immediate release to the seller once the deal is complete and the FFDLC document is presented to the bank. Similarly, the buyer does not risk sending payment to the seller without knowing whether or not the goods have actually been shipped.