How To Finance Supplier Payments When Buyers Pay By DLC or SBLC
Trade Finance Execution Guide
How To Finance Supplier Payments When Buyers Pay By DLC or SBLC
The trade stalls when your buyer pays under a DLC or backs payment with an SBLC while your supplier insists on cash before shipment. The workable answer is to convert the LC commitment into near-term liquidity using established structures that banks and confirmers approve. Below we show the exact options that fund suppliers on time, how to document them cleanly, and how Financely underwrites, locks wording, and places these facilities so you can book cargo without straining cash.
Start With Feasibility: Intake And First Pass
We review buyer strength, issuing bank quality, supplier terms, Incoterms, shipment plan, and insurance. We map the paper and cash trail and select the structure that will clear credit. You receive a concise go or a fix list with priorities and timelines.
Submit RFQ — Trade FinanceProven Structures That Unlock Supplier Cash
Exporter is paid at sight after compliant presentation. Importer repays at maturity. Works when the buyer accepts usance tenor and the issuing or confirming bank can discount.
Back-to-Back LCBuyer’s master LC supports a second LC to your supplier. Terms mirror the master LC. Requires strict document control and substitution to keep both presentations clean.
Red / Green Clause LCPre-shipment advances within the LC. Red clause funds working capital; green clause funds against warehouse receipts. Less common, but effective with strong buyers.
Add a confirmer in the exporter’s market. On compliant documents, the confirmer pays at sight or discounts accepted drafts, giving the supplier cash while you settle later.
Packing Credit / Pre-Export FinanceShort-term facility to fund deposits, raw materials, or production. Secured by export orders and supported by the buyer’s LC or your SBLC. Often paired with credit insurance.
Insured Pre-Shipment / Receivables PurchaseAdvance against a trade credit policy with named buyer limits. Lender relies on policy terms and assigned proceeds, plus LC support where relevant.
Which Option Fits Your Trade
| Structure | When It Works | Pros | Watchouts |
|---|---|---|---|
| UPAS LC | Buyer accepts usance; issuer or confirmer can discount | Supplier paid at sight; importer gets tenor | Requires clean presentation; pricing by tenor and risk |
| Back-to-Back LC | Strong master LC; tight document control | Funds supplier without cash outlay | Any master discrepancy impacts the secondary LC |
| Red / Green Clause | Buyer agrees to pre-shipment advances | Funds deposits or storage under LC | Less common; higher scrutiny of controls |
| Confirmation + Discounting | Exporter market prefers bank risk over importer risk | Liquidity on presentation or acceptance | Confirmation availability is jurisdiction sensitive |
| Packing Credit / PXF | Export orders plus LC or SBLC support | Flexible pre-shipment working capital | Needs collateral, assignments, and track record |
| Insured Pre-Shipment | Quality policy with named buyer limits | Improves advance rates and lender comfort | Policy must align with facility covenants and reporting |
DLC And SBLC: Different Rulebooks, Different Uses
Payment against compliant documents. To fund suppliers, use UPAS, confirmation with discounting, or back-to-back LC. Keep presentation rules objective and aligned with the shipment plan.
A default backstop, not a payment method by itself. Pre-shipment cash requires a lender that accepts the SBLC as support plus clear draw wording and operational controls.
Structuring And Wording Control
We clear LC and SBLC text so draws are objective and operational. For DLCs, we align Incoterms, document lists, and presentation timelines. For SBLCs, we tighten draw statements and align endorsements and assignments if insurance is used.
Explore Structured Commodity FinanceWorked Examples You Can Replicate
Buyer issues a 120-day DLC on UPAS terms. Confirming bank pays supplier at sight after compliant presentation. Buyer repays at day 120. Documentation stays within UCP 600. Supplier friction drops and inventory arrives on schedule.
Master LC is issued in your favor. Your bank issues a second LC to upstream suppliers using the master as support. Documents under the second LC are substituted to comply with the master LC. You match presentations, collect cleanly, and fund the OEMs on time.
Buyer provides an SBLC as a backstop. A packing credit facility is secured by the SBLC, assignments of proceeds, and a trade credit policy. Funds cover deposits and production. Repayment comes from DLC proceeds or insured receivables.
Case Studies: Bridging DLC / SBLC To Supplier Cash
Challenge: Buyer paid by DLC on 150 days; supplier required 30% deposit and 70% before loading. Cash gap USD 4.2M.
Structure: UPAS DLC with confirmation and discounting; exporter paid at sight; importer repaid at maturity.
Outcome: On-time shipment; finance cost 3.1% for the cycle; margin preserved; line renewed for three lanes.
Challenge: Buyer issued SBLC (ISP98). Origin supplier demanded full cash on order. Seasonal window.
Structure: Packing credit secured by SBLC, assignment of proceeds, and trade credit policy on the buyer.
Outcome: USD 8M executed over two harvests; discrepancy ratio near zero; blended cost 2.7%; policy in force.
Challenge: Tier-1 buyer issued master DLC; multiple upstream OEMs demanded cash in Asia.
Structure: Back-to-back DLCs with document substitution; confirmation added in two geographies.
Outcome: USD 6.5M shipped in four tranches; no demurrage; improved supplier terms next cycle.
Approval Path And Requirements
RFQ And Data Room
Executed buy and sell contracts, LC or SBLC drafts, product spec, logistics plan, KYC, AR/AP aging, 12-month bank statements.
Underwriting And Structure
We select between UPAS, back-to-back, confirmation plus discounting, packing credit, or insured pre-shipment. Limits and cash conversion are stress-tested.
Term Sheet And Wording Lock
Facility terms, draw mechanics, conditions precedent, and final LC or SBLC wording. Insurance endorsements and assignments aligned.
Placement And Closing
We place with banks, confirmers, and insurers that fit the lane. Draws begin once conditions are satisfied and operations are ready.
What To Prepare Before Intake
- Executed purchase and resale contracts with Incoterms and payment terms
- LC or SBLC draft wording for review
- Product spec, HS codes, packing list format
- Logistics plan, insurance certificates, loss payee details
- Corporate KYC, ownership chart, sanctions screenings
- Three years financials plus YTD management accounts
- Twelve months bank statements
- AR and AP aging with top buyer and supplier exposure
- Credit insurance policy and current buyer limits if applicable
- Warehouse or collateral control agreements if inventory is funded
Pricing Reality For These Solutions
| Cost Item | What It Covers | Driver |
|---|---|---|
| Underwriting Retainer | Analyst and banker time to produce a bankable package | Scope, speed, counterparty risk, documentation quality |
| LC Issuance / Confirmation | Bank fees to issue and confirm the LC | Tenor, jurisdiction, bank quality, buyer strength |
| Discounting / UPAS Cost | Funding cost for early payment at sight | Base rates, margin, tenor, and risk |
| Packing Credit Margin | Working capital cost before shipment | Collateral, controls, track record, policy support |
| Insurance Premium | Non-payment coverage for named buyers | Obligor risk, country, tenor, limits, claims history |
| Legal And Operations | Drafting, endorsements, assignments, onboarding | Complexity and number of counterparties |
There is no credible structure that skips underwriting, wording control, or bank fees. Offers that promise this are not taken seriously by regulated counterparties.
Execution, Monitoring, And Scale-Up
We supervise first draws, document checks, covenant reporting, and any borrowing base tests. If performance tracks the plan, we request limit increases and add counterparties. If variance appears, we correct it before it compounds.
Read FAQs Before You ApplyFAQ: Funding Suppliers When Buyers Pay By DLC Or SBLC
Not directly. An SBLC is a backstop, not cash. You need a facility secured by the SBLC and other controls, or a DLC-based solution such as UPAS or confirmation with discounting.
Is UPAS LC accepted widelyYes, where banks have appetite. It pays the exporter at sight and gives the importer time to repay at maturity, provided the LC is clean and discounting is available.
What if the issuing bank is small or in a higher-risk marketAdd confirmation from a recognized bank in the exporter’s market. Pricing reflects jurisdiction and bank risk.
Can we set up a red or green clause instead of separate financePossible if the buyer agrees and the bank is comfortable. It remains less common and requires strong controls.
Do I need collateral for packing creditOften yes. Collateral, assignments of proceeds, and track record improve terms. Insurance and LC support can raise advance rates.
Commercially negotiated. Many importers carry these costs because they benefit from tenor and supplier goodwill.
How long does setup takeTwo to six weeks from complete intake to first draw, depending on structure, documents, and jurisdictions.
What kills deals at the last mileSubjective LC wording, inconsistent names or addresses, late shipment changes, weak issuing banks without confirmation, and missing insurance endorsements.
Can one facility cover multiple suppliersYes, if documents and controls are consistent. Back-to-back LC programs can support multiple OEMs with strict substitutions and consolidated presentations.
Can we proceed without a retainerNo. Underwriting and wording control take real time. Without a retained scope, banks and insurers will not engage seriously.
Financely is a capital advisory. We are not a bank. All transactions are subject to due diligence, underwriting, counterparty approvals, documentation, and compliance reviews. We do not guarantee issuance or provide free assessments. Mandates proceed on a retained basis and only through the formal intake process.
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