4.3.1 Types of Documentary Credit:
Documentary Credits may be either:
(i) Revocable or, (ii) Irrevocable.
Revocable credit: A revocable credit is a credit that can be amended or cancelled by the issuing bank at any time without prior notice to the seller.
In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended or cancelled while the goods are in transit and before the documents are presented, or although presented before payments has been made. The seller would then face the problem of obtaining payment on the other hand revocable credit gives the buyer maximum flexibility, as it can be amended or cancelled without prior notice to the seller up to the moment of payment buy the issuing bank at which the issuing bank has made the credit available. In the modern banking the use of revocable credit is not widespread.
Irrevocable credit: An irrevocable credit constitutes a definite undertaking of the issuing bank (since it can not be amended or cancelled without the agreement of all parties thereto), provided that the stipulated documents are presented and the terms and conditions are satisfied by the seller. This sort of credit is always preferred to revocable letter of credit.
Sometimes, Letter of Credits is marked as either ‘with recourse to drawer’ or ‘without recourse to drawer’.
4.3.2 Parties to a letter of Credit:
The parties are:
The Issuing Bank,
The Confirming Bank, if any, and
The Beneficiary.
Other parties that facilitate the Documentary Credit are:
The Applicant,
The Advising Bank,
The Nominated Paying/ Accepting Bank, and
The Transferring Bank, if any.
i. Importer – Seller who applies for opening the L/C.
ii. Issuing Bank – It is the bank which opens/issues a L/C on behalf of the importer.
iii. Confirming Bank – It is the bank, which adds its confirmation to the credit and it is done at the request of issuing bank. Confirming bank may or may not be advising bank.
iv. Advising / Notifying Bank – is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporter’s country. It may also assume the role of confirming and / or negotiating bank depending upon the condition of the credit.
v. Negotiating Bank – is the bank, which negotiates the bill and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same. Sometimes it can also be confirming bank.
vi. Paying / Accepting Bank – is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank.
vii. Reimbursing bank – is the bank, which would reimburse the negotiating bank after getting payment – instructions from issuing bank.
4.3.3 Some Important Documents of L/C:
Forwarding:
Forwarding is the letter given by the advising bank to the issuing bank. Several copies are sent to the issuing bank. All copies including original should be kept in the bank.
Bill of exchange:
According to the section 01, Negotiable Instruments (NI) Act-1881, A “bill of exchange” is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay [on demand or at fixed or determinable future time] a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. It may be either at sight or certain day sight. At sight means making payment whenever documents will reach in the issuing bank.
Invoice:
Invoice is the price list along with quantities. Several copies of invoice are given. Two copies should be given to the client and the other copies should be kept in the bank. If there is only one copy, then its photocopy should be kept in the bank and the original copy should be given to the client. If any original invoice contains the custom’s seal, then it cannot be given to the client.
Packing List:
Packing list is the letter describing the number of packets and there size. If there are several copies, then two copies should be given to the client and the remaining should be kept in the bank. But if there is only one copy, then the photocopy should be kept in the bank and the original copy should be given to the client.
Bill of Lading:
Bill of Lading is the bill given by shipping company to the client. Only one copy of Bill of Lading should be given to the client and the remaining copy should be kept in the bank.
Certificate of Origin:
Certificate of origin is a document describing the producing country of the goods. One copy of the certificate of origin should be given to the client and the remaining copy should be kept in the bank. But if there is only one copy, then the photocopy should be kept in the bank and the original should be given to the client.
Shipment Advice:
The copy mentioning the name of the insurance company should be given to the client and the remaining copies should be kept in the bank. But if only one copy is given, then the photocopy should be kept in the bank and the original copy should be given to the bank.
4.4 Import Section:
Imports of goods into Bangladesh is regulated by the ministry of commerce and industry interims of the Import and Export (Control) Act, 1910, with import policy orders issued by annually, and Public Notices issued from time to time by the office of the Chief Controller of Import and Export (CCI & E). Through the process of import some vital but which are inadequate in our country products are imported to meet the local needs of the people.
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