Presentation on: Documentary Credits BY: Fairuz Chowdhury Lecturer, BBS
Documentary credit is as assurance of payment by the bank. It is an arrangement under which the bank, at the request of the buyer, undertakes to make payment to the seller provided specific Documents are submitted. Documentary Credits are akin to bank guarantee. Documentary Credits in Popular Language are Known as LETTER OF CREDIT (LC)
1. Commercial Parties. There are two commercial parties viz. Applicant & Beneficiary. A. Applicant The applicant is normally the buyer of the goods. i.e. the importer who request his bank to issue a letter of credit in favor of a named beneficiary/seller of goods.
B. Beneficiary The beneficiary is normally the seller of goods who receives payment under documentary credit if he has complied with terms and conditions thereof. A credit issued in favor of the beneficiary to enable him or his agent to obtain payment once he performed his part of contract and submitted stipulated documents showing compliance with the terms and conditions of letter of credit.
2. Bankers . Issuing Bank : - The issuing bank or the opening bank is one which issue the credit, i.e. undertake, independent of the Undertaking of the applicant, to make payment provided the terms and conditions of the credit have been complied with . Advising Bank The advising bank advises the credit to the beneficiary thereby authenticating the genuineness of the credit. . Confirming Bank A confirming bank is the one which adds its guarantee to the credit. It undertakes the responsibility of payments / negotiation / acceptance under the credit in addition to that of the issuing bank.
STAGES IN PERFORMANCE OF LETTER OF CREDIT Stage 1 Purchase of goods Stage 2 L/C Application ( Buyer- Importer’s/ Buyer’s/ Issuing Banks) Stage 3 L/C Issue Stage 4 L/C Notification Stage 5 Shipment ( of goods) ( By exporter) Stage 6 Shipping Docs. ( Seller- Exporter’s Bank)
Stage 7 Bankers’ Acceptance/ Presentation of Documents Stage 8 Billing ( Importer’s Bank- Importer)