Documentary Credit Transaction


A Documentary Credit has four principal parties , namely ;

---------Applicant  (Opener)

---------Issuing Bank  (Opening Bank)

---------Advising Bank


Applicant :-  Applicant is normally a buyer of the goods who has to make payment to the beneficiary . A L/C is initiated and issued at his request and on the basis of his instructions .

Issuing Bank  :-  Issuing Bank is one which issues the credit i.e. it is the bank which creates a Letter of Credit and undertakes to make payments .

Advising Bank :-  Advising Bank advises the credit to the beneficiary thereby assuring the genuineness of the credit . It is normally situated in the country / place of beneficiary .

Beneficiary :-  Beneficiary is normally a seller of the goods , who has to receive payment from the applicant . A credit is issued in the favour  to enable him or his agent to obtain payments on surrender of stipulated documents and comply with the terms and conditions of the L/C . If L/C is transferable one and he transfers the credit to another party , then he is referred to  as the First or Original Beneficiary .

In Documentary Credit some other parties are also important which are as follows :-

-----Confirming Bank
-----Paying Bank
-----Accepting Bank
-----Negotiating Bank
-----Reimbursing Bank
-----Second Beneficiary

Documentary Credit is thus an arrangement whereby a Bank acting at the request of customer , undertakes to pay a third party by a given date according to agreed stipulation and against presentation of documents , the value of goods or service dispatched / supplied . It is very little differ from Bank guaranty that is - Bank Guaranty covers situation of non - performance where as Documentary Credit are normally issued in the event of  performance .