The document discusses the key parties and stages involved in documentary credits (letters of credit), including the applicant (buyer), beneficiary (seller), issuing bank, advising bank, and confirming bank. It describes the different types of documentary credits such as revocable vs irrevocable, confirmed vs unconfirmed, and fixed vs installment credits. The stages of performance include opening the letter of credit, shipment, collection and presentation of documents, and settlement of payment.

1. Management Training Session on
Documentary CreditsDocumentary Credits
( Letter of Credit )

2. DOCUMENTARYDOCUMENTARY CREDITS
• Documentary credit is as assurance of payment by the bank .
• It is an arrangement under which the bank , at the
request of the buyer or on its own , 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)

3. PARTIES TO DOCUMENTARY CREDITS
• 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 favour of a named beneficiary against
tendering of certain specified documents .

4. PARTIES TO DOCUMENTARY CREDITS
• The Role of Applicant .
• Supply the bank with complete instruction .
( To fill out standard application form )
• Issue instruction for amendments if any
• Decide on discrepancies reported by the issuing bank
to him
• Arrange for funds at the payment time .

5. PARTIES TO DOCUMENTARY CREDITSPARTIES TO DOCUMENTARY CREDITS
• 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 favour 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 .
• In case of a transferable letter of credit , the credit is
transferred to another party , the original beneficiary is
known as first beneficiary the person to whom the credit
is transferred is known as the second beneficiary .

6. PARTIESPARTIES TO DOCUMENTARY CREDITSTO DOCUMENTARY CREDITS
• The Role of BeneficiaryThe Role of Beneficiary
• Establish the terms of payment when sales contracts
is being Negotiated
• Assess the risk of non payment even when compliant
documents are presented in the case of unconfirmed
LCs.
• Provide the draft wordings to buyer regarding LC
Terms
• Scrutinize LC on receipt from the advising bank to
check whether it is in consonance with the sales
contract and whether it is otherwise workable and
acceptable to him .
• Request for LC amendments from buyer
• Provide copy of the credit to dispatch department
and cargo agent to ensure correct documentation .

7. PARTIESPARTIES TO DOCUMENTARY CREDITSTO DOCUMENTARY CREDITS
• 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 .

8. PARTIESPARTIES TO DOCUMENTARY CREDITSTO DOCUMENTARY CREDITS
• .Nominated Bank
• A Nominated bank is the bank nominated or
authorized by issuing bank to pay , to incur a
deferred payment liability , to accept drafts or to
negotiate the credit
• .Reimbursing Bank
• A reimbursing bank is the bank authorized to
honour the reimbursement claims in settlement
of negotiation with the paying or accepting
bank .

9. PARTIESPARTIES TO DOCUMENTARY CREDITSTO DOCUMENTARY CREDITS
• 3. Related Parties
• .Insurer
• The insurer has the prime responsibility for
insuring the goods as provided for in the credit .
• .Carrier
• The carrier , i.e. the shipping company or airline
or road transport agency is responsible for safe
arrival of the goods at the destination .

10. TYPES OF DOCUMENTARY CREDITS
• A .Revocable and Irrevocable Documentary Credit
• 1. Revocable Documentary Credit
• This type of credit is one which can be cancelled , revoked
or amended without the consent of the beneficiary or the
applicant ( without prior notice to beneficiary ) up to
moment of payment .
• Under UCP article 6 it is compulsory to indicate whether LC
is revocable or irrevocable . If not then it is considered
deemed to be irrevocable .
• 2. Irrevocable Documentary Credit
• It is other hand of Revocable LC

11. TYPES OF DOCUMENTARY CREDITS
• B. .Confirmed and Unconfirmed Documentary Credit
• 1. Confirmed Documentary Credit
• Confirmed Credit is the one to which another bank , that is
a bank other than the issuing bank , has added its
confirmation and guarantee
• Confirmation at the request of the Seller .
• 2. Unconfirmed Letter of credit
• It is in other hand of confirmed LC

12. TYPES OF DOCUMENTARY CREDITS
• C. .Fixed , and Installment Credit
• 1. Fixed Credit
• Fixed credit is available for fixed amount and period .
• 2. Installment Credit
• Installment Credit is available for full value of goods to be
shipped in stipulated time at stated intervals
• D. The Stand by Letter of Credit
• Is not at all documentary credit .
• It is a guarantee issued in format of LC by issuing bank
• E. The Inland Letter of Credit .

13. STAGES IN PERFORMANCE OFSTAGES IN PERFORMANCE OF
LETTER OF CREDITLETTER OF CREDIT
• STAGES IN PERFORMANCE OF LETTER OF CREDIT
• Stage 1 Opening of Letter of Credit ( Application for LC )
• Stage 2 Mailing of LC to Beneficiaries bank
• Stage 3 Examination of LC by Exporter
• Stage 4 Amendments to LCs
• Stage 5 Confirmation
• Stage 6 Shipment

14. STAGES IN PERFORMANCE OFSTAGES IN PERFORMANCE OF
LETTER OF CREDITLETTER OF CREDIT
• Stage 7 Collection of Documents
• Stage 8 Presentation of Documents
• Stage 9 Examination of Documents by Issuing Bank
• Stage 10 Handling of Discrepant Documents
• Stage 11 Settlement of Payment .

15. THE PAYMENT STRUCTURETHE PAYMENT STRUCTURE
• 1. Sight Credit
• In this the payment is release to Beneficiary on
presentation of documents
• 2. Acceptance Credit
• In this beneficiary draws the bill of exchange on
issuing bank and allows some time for
acceptance
• 3. Deferred Credit
• Is same as Acceptance Credit except there is no
bill of exchange .

16. GENERAL DOCUMENTS UNDER
DOCUMENTARY CREDITS
• Commercial Invoice
• Packing List
• Bill of lading and other transport documents
• Certificate of Origin
• Inspection Certificate
• Bill of Exchange
• Insurance Documents

17. UNIFORM CUSTOMS AND PRACTICES
FOR DOCUMENTARY CREDITS
(UCPDC)
- Issued by International Chamber of Commerce ( ICC )
Based in Paris
- First version in 1929 . Revision in 1933 , 1951 , 1962 ,
1974 , 1983
- Currently Valid version is UCP 500 1993 being effective
from 01/01/1994
- Has 49 Articles
- Is universally accepted ( 151 countries around the
world )
• Famous rules and guidelines

18. SWANAND INTERNATIONAL
SEZ / EOU Consultants
Phone No. - 022 - 2578 1853
E-mail : dswanand@mtnl.net.in
Website :- www.sez-india.net