What is Documentary letter of credit for Apparel Merchandising?

Documentary letter of credit is such kinds of commercial letter which a bank issue on behalf of foreign seller (exporter) according to the direction of the (importers) purchasers. The documents shown under are known as export documents form the importer's side. These are :-

Bill of Exchange 

The bill of exchange is that particular instrument through which payment is effected in trade deals internal and international. The payment for the goods is received by the seller through the medium of a bill of exchange drawn on the buyer for the amount depending on the contract. It is a negotiable instrument. There are five main parties involved in a bill of exchange. They are :- 

⇒Drawer 

⇒Drawee 

⇒Payee 

⇒Endorser 

⇒Endorsee

Bill of Lading 

A bill lading is a document of title to goods entitling the holder to receive the goods as beneficiary or endorsee and it is with the help of this document on receipt from the exporter that the importer takes possession of the goods from the carrying vessel at the port of destination.

Airway bill / Railway receipt 

When goods to be transported are small in bulk or requiring speedy delivery or those are perishable in nature on the deal is in between the neighbouring countries then mode of transports other than shipping may be resorted to far the carriage of the goods Airways bill / Railway receipt take place of Bill of lading depending on the nature of the carrier.

Commercial Invoice

It is the seller's bill for the merchandise. It contains a description of goods, the price per unit at a particular location, total value of the goods, packing specifications, terms of sale, letter of credit, bill of lading number etc. There is no standard form far a commercial invoice. Each exporter designs his own commercial invoice form. The invoice is made out by the seller under his signature in the name of the buyer and must be submitted in a set of at least 3 copies. Its main purpose is to check whether the appropriate goods have been shipped and also that their unit price, total value, marking on the package etc. are consistent with those given in other documents.

Insurance Policy

In the international trade insurance policy is a must to cover the risk of loss on consignments while they are on seas, roads, airways. The insurance is the responsibility of the buyers (consignee) under FAS, FOB and C&F contracts and of the seller (consignor) under CIF contract. The policy must be of the type as specified in the relative contract / credit. The policy would be for the value of CIF price plus 10 (ten) percent to cover the expenses and that is required to be obtained in the same currency as that of the credit and dated not later than the date of shipment with claims* being payable at the destination. It must be properly stamped. Like a bill lading it must be negotiable and be endorsed where it is payable to order.

Certificate of Origin

This is a certificate issued by a recognized authority in exporting country certifying the country of origin of the goods. It is usually by the Chambers of commerce. Some times, it is certified by local consul or Trade Representative of the importing country as per terms of the credit.

Packing List

The exporter must prepare an accurate packing list showing item by item, the contents of the consignment to enable the receiver of the shipment to check the contents of the goods, number and marks of the package, quality, per package net weight, gross weight, measurement etc. Weightment and Measurement: Issued by recognised authority (like chambers of commerce and industry) in exporting country certifying correct weightment and measurement of the goods exported.

Bill of Entry

A bill of entry is a document which contain the particulars of the imported goods as well as the amount of customs duty payable. The exporter submit the following papers/documents to the Negotiating bank :

⇒Bill of exchange / Draft.

⇒Bill of lading.

⇒Airway bill / Railway receipt.

⇒Commercial invoice.

⇒Insurance policy.

⇒Certificate of origin.

⇒Packing list.

⇒Weightment & measurement list. Other etc.

The negotiating bank after received the above documents / papers then this bank scrutiny the documents. The negotiating bank sends the original shipping documents to the L/C opening bank and keeping the second copy with the negotiating bank.