Presentation on: Documentary CreditsBY:Fairuz ChowdhuryLecturer, 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. BeneficiaryThe 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 BankThe advising bank advises the credit to the beneficiary thereby authenticating the genuineness of the credit..Confirming BankA 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 .

Negotiating Bank:A negotiating bank is thebeneficiarys bankwhich agrees topaythe beneficiary by purchasing anegotiable instrument.

STAGES IN PERFORMANCE OF LETTER OF CREDIT

Stage 1 Purchase of goods

Stage 2 L/C Application ( Buyer- Importers/ Buyers/ Issuing Banks)

Stage 3 L/C Issue

Stage 4 L/C Notification

Stage 5 Shipment ( of goods) ( By exporter)

Stage 6 Shipping Docs. ( Seller- Exporters Bank)

Stage 7 Bankers Acceptance/ Presentation of Documents

Stage 8 Billing ( Importers Bank- Importer)