Documentary Sales: How Exporters and Importers in the Dominican Republic Get Paid Without Getting Burned

A container leaves the Port of Caucedo bound for a buyer the seller has never met. The goods are worth six figures. The seller wants payment before losing control of the cargo; the buyer refuses to pay for merchandise that has not arrived, and may not match the contract. International trade has solved this standoff for more than a century with a mechanism that still governs most cross-border sales into and out of the Dominican Republic: the documentary sale.

The idea is simple. Instead of trusting each other, the parties trust paper, and the banks that handle it. Three interlocking contracts do the work: the sales contract between buyer and seller, a letter of credit issued by the buyer’s bank in the seller’s favor, and the bill of lading between the seller and the carrier.

The letter of credit: payment against documents, not promises

A letter of credit is the buyer’s bank promising, directly to the seller, that it will pay the contract price once the seller presents documents proving the goods were shipped as agreed. In a documentary sale the letter should be irrevocable, and, ideally, confirmed by a bank in the seller’s own country, so the seller can enforce payment at home rather than suing abroad. The seller ships without having been paid, but the risk shifts from “will the buyer pay?” to “will a bank honor its written commitment?”, a far better bet.

The bill of lading: the goods, in paper form

When cargo is loaded, the carrier issues a bill of lading describing the goods and promising delivery at destination. If the bill is negotiable, whoever holds the properly endorsed document controls the goods, the carrier may not release the cargo without its surrender. That is why a letter-of-credit transaction requires a negotiable bill of lading: the document itself becomes the collateral that lets banks finance the deal. Under CIF terms, the seller must also attach an insurance certificate covering the goods in transit.

Where deals go wrong

A frequent and costly mistake is the “battle of the forms”: the buyer’s purchase order and the seller’s acknowledgment each carry pages of conflicting boilerplate, and nobody reads them until a dispute erupts. Two other traps deserve attention in Dominican transactions. First, currency: the contract should fix the payment currency expressly, or exchange-rate movements can quietly erode the margin. Second, governing law: the parties should state which law and which trade terms apply (Incoterms, UCP 600 for the credit), because the default rules that fill the silence may not be the ones either side expected.

Before signing, have counsel review the full document set, proforma invoice, purchase order, credit terms, transport and insurance documents, as one coherent transaction rather than isolated papers. Most documentary-sale disputes are drafted into existence months before the vessel sails.

Arthur & Castillo advises exporters, importers and their banks on international sale of goods contracts in the Dominican Republic, drafting, reviewing and litigating documentary transactions so your payment terms are as solid as your product. Contact us to review your next cross-border deal.

Do you need our advisory and consulting services for International sale of goods in Dominican Republic? Contact Us.

ABOUT THE AUTHOR: Felipe Castillo is a Partner leading the Foreign Investment, Real Estate & Tourism areas at Arthur & Castillo Advisers and Consultants in the Dominican Republic. He specializes in foreign investment, real estate and international business (Master in International Business, Entrepreneurship and Finance Studies from Georgetown University in Washington, D.C. & Masters in International E- Business in Universitat Pompeu Fabra in Barcelona) with more than 20 years of experience in Foreign Investment, Free Trade Zones, International Business and Cross Border Real Estate practice. He is a Certified Business Bankruptcy Expert and English and Spanish Interpreter.

Email: fcastillo@aclaw.com

Disclaimer: This publication is not intended to provide advice or suggest a guaranteed outcome as individual situations will differ and the situation may have changed since publication. For specific advice on the information provided and related topics, please contact the author.

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