Documentary Credit essay


1.Documentary credit must be presented to the exporter in the followingmanner

I).A confirmed sight credit letter

II)A confirmed deferred payment credit letter.

III).A confirmed letter of credit accessible by acceptance.

IV).Unconfirmed advised credit letter.

V)Confirmed credit letter accessible by negotiation.

VI).Unconfirmed credit letter attainable by negotiation.

2).Contracts made under a confirmed documentary credit mechanism.

Thereare four primary bids made between exporter and importer.

Advancepayment- they importer pays trusts and fronts believing that theexporter will forward the goods. This contract is very secure to theexporter but very insecure to the importer.

Directpayment- this occurs when the seller ships the consignment and thebuyer pays directly. This method acts to be very secure to a buyerbut insecure to a seller.

Documentarycollection- this is an international trading contract whereby a bankin importer country serves as a guarantor on behalf of the seller incollecting and transmitting payment of consignments. The exporterpresents the shipping and collection document in a local bank in hiscountry and then it transmits the documents to the guarantor’s bankin the importer’s country. In case, the buyer fails to honor thecontract he can be sued by the bank on behalf of the seller(Ellinger, 2012).

Documentcredit- this is a contract whereby the buyer has his bank thatprovides the credit that depicts the payments of goods bought. Theexporter is notified by delivering the credit worthiness of the bankfor the buyer’s credit worthiness (Ellinger, 2012).

4)Actions of beneficiary issue based on examination of contracts goods

Thecore duty of the issuing bank is to pay the recipient up verificationof the documents and certifying that it complies with requirementsstipulated in credit letter. The issuing bank is allowed a reasonableamount of time by The Uniform Customs and Practice for thedocumentary first to examine the documents and then honor the letterof credit through making payment to the beneficiary.

Theissuing bank may issue a confirmed documentary letter to confirmingbank for it to confirm the letter for the beneficiary. Once theconfirming bank approves the credit letter, it must ensure payment ismade to the beneficiary. It critically, in this case, evaluates theissuing bank using the necessary requirements of the documentaryletter before it confirms the letter (Ellinger, 2012). In this case,it acts as an advising bank.

7a)Case of bargaining seller

Ifthe seller has strong negotiating position, the buyer can identifyalternative measures (Ellinger, 2012). These measures includeidentifying sellers who are willing to deliver goods within his pricerange and to identify sellers who are ready to obey accept hisprices.

B)Case of strong barging buyer

Whenbuyers have incredibly strong bargaining position, the alternativesto documentary credit are upon the seller to select importers who arewilling to pay higher prices (Ellinger,2012). The seller can alsorequire customization that the buyer can provide.

9)Benefitsof D/C to be confirmed in exporter’s country

Sinceexporting and importing is a risk-taking activity, the exporter runsthe risk of failing to get payment, and the importer is in danger ofgetting anything and in case, any dispute arises, it is hard to solvedue to geographic distance. The exporter chooses to request a bank inhis own to affirm to him that his payment will be made. The seller isensured that his cash will be paid promptly and comprehensively. Thisis because if the exporter meets all requirements, the risk offailure to payment is to the bank and not to the seller (Ellinger, 2012).

10)Afterimporter discovers some ignored or missed discrepancy, can theimporter refuse to reimburse the bank that issued?

Incasediscrepancy has been detected after the importer reviewed thedocumentary credit, then the decision whether he will reimburse theissuing bank or not depends on the terms and conditions between theimporter and issuing bank (Ellinger, 2012). In this case, the letterof credit will not be determined by the agreement made between thebuyer and bank will decide whether he will reimburse


Ellinger,E. P. (2012). Documentary letters of credit: a comparative study.University of Singapore Press.