- A certificate of origin, certifying that goods have been produced in a specific
country; - A certificate of quality, indicating that the goods are in conformity with
specifications, etc.,
- Different Steps of a Confirmed Documentary Credit
The different steps involved in opening a documentary credit can be enumerated as
follows:
First step. The importer of the country (I) orders goods from an exporter of the country
(E).
Second Step. The exporter accepts the order but wants a documentary credit. That is,
he wants to obtain a bank guarantee for dispatching the goods. The exporter gives all the
appropriate indications.
Third step. The importer then asks his bank I (called initiating or issuing bank) to open
a credit to the benefit of the exporter in a bank of the country E. The bank of country E
will receive an advice from the bank of country I towards this effect. The bank of the
exporter in country E notifies the exporter about the arrival of the letter of credit.
Fourth step. The exporter dispatches goods with a bill of lading if the mode of transport
is sea or a transport letter if the mode of transport is by other means. The bill of lading or
transport letter is made in the name of the exporter who remains the owner of goods until
payment.
Fifth step. If the documentary credit is for immediate payment, the beneficiary will
receive the amount on presentation of documents. The notifying bank examines the
documents to verify their conformity with the terms of the opening of the credit. If the
documents are regular, the bank of the exporter pays the amount mentioned in the
documentary credit. If the documentary credit is a credit by acceptance, the exporter will
present the drafts at 30, 60 or 90 days, according to the credit terms, to his bank which
will accept them.
In practice, documentary credit constitutes a flexible mode of financing of imports, which
can be adapted to different conditions of sales. But it remains to be a relatively costly
means of settlement because of the engagement of banks and their relative complexity.
- Draft or Letter of Exchange or bill of exchange
A draft is a note issued by an exporter (drawer) who orders an importer (drawee) or his
representative (bank) to pay a specified sum on a precise date. If the drawee is the buyer
(importer), the draft is called trade draft; if the drawee is the buyer’s bank, then the draft
is called bank draft.