Documentary credit

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  • 1. Documentary Credit

2. Generic Flow of Documentary CreditSeller (Beneficiary) Buyer (Applicant)1. ContractGoods 5. Shipment/Dispatch 12. Takes Delivery2. DC Application 11. Settlement4. Advice of DC 7. Money 10. Documents6. Documents8. Documents9. Reimbursment3. Documentary Credit (DC)Advising/Confirming Bank Issuing Bank 3. DefinitionA Documentary Credit as an instrument ofsettlement of payment obligation between buyerand seller. Letter of Credit : A credit is issued by theissuing bank and addressed to the Beneficiaryin the form of a Letter Commercial Credit: A credit issued by theissuing bank in settlement of a commercialtransaction 4. Definition of DC Documentary Credit : A Credit is issued by theissuing bank and requires the presentation ofstipulated documents for compliance Standby Letter of Credit: A credit is issued bythe issuing bank to be used for settlementonly where there has been some form ofdefault or financial guarantee. 5. Roles of Letter of Credit (LC)Counterparts of a trade are usually locatedoverseas. Sellers (exporters) and buyers(importers) have the following concerns whensigning a trade contract: Exporter/Seller: What if we ship the goods to the importer but they dont pay us the proceeds? Importer/Buyer: What if we are forced to pay the proceeds but the goods do not arrive? 6. Role of LCAn L/C is a letter issued by a bank to guaranteethe payment of proceeds. The bank, whichissued an L/C, guarantees that the proceeds willbe paid even if the importer goes bankrupt or isunable to pay for any other reason, on thecondition that the documents satisfying certainconditions (terms of L/C) are presented. 7. Roles of LC1. Supplementation of credit of the buyer (importer) L/Cs make it easier for buyers to gain trust from sellers in selling their products.2. Convenient tool for the seller (exporter) Sellers will have opportunities to receive finance for the proceeds from the bank easily, in the form of negotiation of export bills. 8. What You Should Know About LC U.C.P.600, Uniform Customs and Practice forDocumentary Credits 2007 Revision (UCP 600)has been established by the InternationalChamber of Commerce (ICC), to standardizeinterpretations and procedures of L/Cs.Majority of L/Cs are subject to rules of the UCP. L/C transactions entirely based on thepresentation of documents 9. What You Should Know About LC Transactions with L/Cs are separate andindependent from export contracts that arethe background of the L/Cs. They are entirelybased on the presentation of documents. Therefore, banks issuing L/Cs must pay theproceeds as written in the L/C so long as thedocuments fulfilling the terms and conditionsof the L/C are presented, even if the goods ortheir shipment violate the export contract 10. Ilustrasi Jurnal SIGHT LC TGL Issuing BankAdvising Bank2 Feb No Entry10 Feb N/AN/A Shipment11 Feb No Entry Presentation of Documents Notify the customers 11. Ilustrasi Jurnal SIGHT LC TGL Issuing BankAdvising Bank14 Feb No Entry 12. Ilustrasi Jurnal SIGHT LC TGLIssuing Bank Advising Bank18 Feb 13. 1. Drawer (ABC Company Ltd.: the customer, negotiation applicant)2. Amount (US$55,800.00: amount requested for negotiation together with currency indication; within the unused balance of the L/C, usually in agreement with the invoice amount)3. Drawee, place of payment (HIJ BANK, New York: the payer and the place of payment of the amount of the bill indicated in the L/C4. Maturity (30 DAYS AFTER SIGHT: as required in the L/C)5. Payee (BTMU: negotiating bank of the bill)6. Date and place of issue (OCTOBER 10, 2008, TOKYO)7. Issuing bank of the L/C, L/C No., date of issue (HIJ BANK, New York; HIJLC1234567890; April 10, 2008)8. Applicant of the L/C (XYZ Corporation New York: payer of the import proceeds) 14. Ilustrasi Jurnal USANCE LC TGLIssuing BankAdvising Bank2 FebNo Entry10 Feb N/A N/A Shipment11 Feb No Entry Presentation of Documents Notify the importer Akseptasi notify advisingbank 15. Ilustrasi Jurnal USANCE LC TGL Issuing Bank Advising Bank14 FebNo Entry