Make Efficient Use Of Documentary Credit
January 31, 2010 by Wade Henderson
Filed under Finance
Documentary credit has been criticized by users due to the complexity of its operations, the number of participants involved in the process, the burden in the administrative chain because of failures, the rigidity of the processes, and the low levels of automation of the tasks.
It is important for exporters to make sure the process for documentary credit starts by negotiating with the customer. When the conditions of the agreement are not met, the bank will refuse the payment of the merchandise.
We want to spare you from all the inconveniences that documentary credit may infringe upon you with a set of recommendations.
Negotiate, negotiate, negotiate. Make sure that you agree with the importer of what conditions to set for the deal from the very beginning. Remember to look for realistic and convenient banks, deadlines, costs and forms of payment.
Request a sample documentary credit. By doing this, you ensure that the information containing your own will not leave anything important out.
Reception of the documentary credit file. When the bank informs you that your credit has been approved, you must read the terms and conditions of the document. Pay special attention to any restriction you find.
Find out how and when you should make changes to the documentary credit. Life happens and some exporters are not able to fulfill the importers expectations. Ask your client when and how modifications can be made.
When you receive the last draft of documentary credit, make sure you read the fine print and understand all that it implies. Make changes before it is validated. If you are content with the content of the document, you can proceed to the shipment of the merchandise.
The documents of each part, exporter and importer, are compared to verify that all information is valid. This verification is done before opening and charges.
If you were to underline something, pay attention to deadlines, amounts, currencies, exchange rates and of course to the content of the document itself.
Lastly, if the bank that will give provide the payment for the merchandise finds any problem in the documentary credit make sure you correct those errors. You should negotiate with the issuing bank until there is agreement on how to proceed.
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