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Import
Import Documentary Credit
An Import Documentary Credit is a commitment given by Your (the buyer’s) bank, to the seller (Exporter), that they will make payment upon presentation of a pre-agreed, specified set of documents Time scales, dispatch dates and other terms can be built into the DC as required
Advantages
- DCs are one of the most popular methods for settling international trade transactions because they are honoured throughout the banking system and offer security to both buyer and seller. The seller wants security of payment; the buyer wants an assurance that payment will be made only after dispatch of the specified goods. In some countries, settlement by DC is insisted upon by the authorities, who may wish to control imports or the associated outflows of foreign exchange
- You can be much more confident that the goods You have ordered will be as specified in the contract, and delivered at the agreed time and place.
- Each DC can be tailored to Your requirements governing shipping, delivery, insurance and quality inspection. This in turn allows You to use the goods or sell them on with confidence, thereby fulfilling orders with different customers
- Since payment is guaranteed by Your bank, trading on DC terms provides security for Your supplier. This gives You extra power to negotiate a price discount on Your imported goods – most exporters will typically build in heavy price penalties to protect themselves from the risk of late payment
- While using Import DCs You will have opportunities to finance Your transactions efficiently through exercising deferred payment DC options, where You will be able to pay after receipt of the goods, and short–term import loans
Import Bills for Collection
The exporter dispatches the goods to You, and instructs their bank to send the shipping documents to Your bank, along with instructions about collecting payment. The bank acts on behalf of the exporter’s bank to collect payment from You, or a promise that You will pay at a later date if You have agreed this with the exporter. This promise normally involves You accepting a Bill of Exchange. Under the agreement, the bank will not release the shipping documents until payment or acceptance has been made. On pre-agreed terms the Bank can guarantee Your payment of the accepted Bill of Exchange by means of avalization.
Advantages
- You pay for goods only when You are happy that the shipping documents–such as invoices, insurance certificate and bills of lading – are as stipulated in the underlying commercial contract
- Provides You with a degree of security that, if the paperwork is correct, the corresponding shipment should be in order, too
- Easy and speedy to set up, making them particularly suitable for transactions that need to take place
- Often used to bridge the gap between trading on Documentary Credits and open account, where a relationship is building up between buyer and supplier that indicates mutual trust
- There are possibilities to finance Your transactions through short term import loans
The bank provides follow-on-finance for both, Import Documentary Credits and Import Bills for Collection, by means of short-term import loans until the importer receives the proceeds from their own end buyers.
