Smart Gyan

DOCUMENTARY CREDIT/Letter of Credit is an undertaking by a bank to the Beneficiary (Exporter/ seller) that it would make payment to him against presentation of documents drawn in terms of the credit. The Documentary Credit (DC) would be issued at the request of the customer (Importer /buyer) of the bank. DC is a widely prevalent mechanism for settlement of trade in international trade. It assures the exporter of payment. Also, he is assured that the importer is bonafide and that the formalities in the importer’s country regarding the import have been complied with. As far as the importer is concerned, he will pay for the import only on receipt of the documents conforming to the terms and conditions of the credit. The process of a Documentary Credit: 1.  The contract is made between the importer and the exporter. 2.     The importer asks its bank to issue a documentary credit to the exporter. 3.     The importer's bank sends the docume...

Bank Guarantee is an instrument issued by the Banks in which the Bank agrees to stand guarantee against the non-performance of some activity/event of a customer.   The guarantee is issued on receipt of a request from ‘applicant’ for some purpose/transaction in favour of a ‘Beneficiary’.   The guarantee amount will be paid by the ‘issuing bank’ to the ‘beneficiary’ of the guarantee on receipt of the ‘claim’ from the beneficiary i.e., when the guarantee is “Invoked”. Parties involved in a Bank Guarantee 1.     Applicant: Applicant means the party indicated in the guarantee as having its obligation under the underlying relationship supported by the guarantee. The applicant may or may not be the instructing party. 2.     Beneficiary: Beneficiary means the party in whose favour a guarantee is issued. 3.     Guarantor: Guarantor is the institution that issues the bank guarantee. Guarantor means the party issuing a gu...