What Is a Fully Funded Documentary Letter Of Credit?

A fully funded documentary letter of credit (FFDLC) is a written promise of payment provided by a buyer to a seller that is guaranteed to clear at a specific bank. The seller receives payment when it has fulfilled all the terms of the agreement and presented the letter of credit to the bank.

Understanding FFDLC

A fully funded documentary letter of credit (FFDLC) is a method of payment that is especially useful for international transactions — along with numerous other types of letter of credit — when contractual terms are difficult to enforce due to different laws in each country.

The FFDLC provides assurance to the seller that the buyer has the necessary funds for the transaction, as it proves the buyer has transferred cash to the involved bank. Similarly, the buyer does not have to risk sending payment to the seller without knowing whether or not the goods have actually been shipped.

The bank holds the funds for immediate release to the seller once the deal is complete and the FFDLC document is presented to it. The seller may be required to fulfill certain conditions before collecting payment. Such terms may include proof of shipment, such as a bill of lading stamped by customs. The conditions under which funds may revert to the buyer, such as the seller's failure to provide a bill of lading within a set time, are also outlined in the FFDLC.