CHAPTER 22 - CYCLE OF DOCUMENTARY CREDIT

Documentary Credits - Sight (Documents against Payment)

·         Buyer and the seller enter into a sale / purchase contract listing the terms and conditions of the sale.

·         Issuing Bank (Buyer’s Bank) establishes a Documentary Credit at the request of the buyer in favour of the seller / supplier (Beneficiary of the Documentary Credit) and advises the same through its correspondent in the country of residence of the seller.

·         The goods are dispatched by the seller.

·         The seller submits stipulated documents as per DC terms to the Negotiating Bank and fulfills the terms and conditions of the DC.

·         The negotiating bank makes payment to the seller if stipulated documents are submitted and terms and conditions of the DC are complied with.

·         The negotiating bank forwards the documents to the issuing Bank.

·         The negotiating bank claims reimbursement for the value of negotiation.

·         The issuing Bank debits buyer’s account and delivers the documents to the buyer to enable him to take delivery of the goods if the documents are founds to be compliant.

Documentary Credits - Usance (Documents against Acceptance)

·         Buyer and the seller enter into a sale / purchase contract listing the terms and conditions.

·         Issuing Bank (Buyer’s Bank) establishes a Documentary Credit at the request of the buyer in favour of the seller / supplier (Beneficiary of the Documentary Credit) and advises the same through its correspondent in the country of residence of the seller.

·         The goods are dispatched by the seller.

·         The seller submits stipulated documents as per DC terms to the Negotiating Bank and fulfills the terms and conditions of the DC.

·         The negotiating bank makes payment at a future agreed date to the seller if stipulated documents are submitted and terms and conditions of the DC are complied with.

·         The negotiating bank forwards the documents to the Issuing Bank.

·         The Issuing Bank accepts the drafts if documents are found to be in order, convey, its acceptance and due date for payments to the negotiating bank.

·         The Issuing Bank delivers the documents to the buyers to enable him to take delivery of the goods.

·         The negotiating bank claims reimbursement for the value of negotiation on the due date.

·         The Issuing Bank debits the Buyer’s account on the due date for the value of the goods.