Documentary Letter of

Credit
It is a signed or authenticated

instrument issued by the buyers

banker, embodying an undertaking to
pay to the seller of a certain amount of
money upon presentation of
documents , evidencing shipment of
goods, as specified and compliance of
other terms and conditions

Documentary LC
contd
It is an undertaking issued by the bank, on

behalf of the importer or the buyer, in favour

of the exporter or seller , that, if the
specified documents , showing that a
shipment has taken place or a service has
been supplied, are presented to that bank,
within the stipulated time, he (exporter/seller)
will be paid.

LC flow chart

Parties to an
Documentary LC
Buyer/Importer/applicant
Seller/Exporter/beneficiary
Opening bank-buyers/importers bank
Advising bank ( bank in sellers country)
Confirming bank
Negotiating bank( usually sellers bank or

bank nominated by the opening bank)

Re-imbursing bank

Why Documentary
credit?
Banks deal in documents and not in goods.
The constructive delivery of goods takes

place once the documents of title are handed

over to the Bank . Letter of Credit gives
comfort both to the exporter as well as the
importer.

Revocable LC
LC which can be amended or cancelled

without the consent of the parties, as long as

the LC has not been drawn or documents
taken up

Irrevocable LC
LC which cannot be amended or cancelled

without the consent of all the parties

concerned
Irrevocable Confirmed LC: Irrevocable LC
confirmed by another Bank

Transferable LC
LC is available for transfer in full or in part in

favour of any party other than the

beneficiary , by the advising bank at the
request of the issuing bank. It can be
transferred to one or more second
beneficiaries. But the second beneficiaries
cannot transfer the LCs to any other persons.

Red Clause LC
This enables the beneficiary ( exporter) to

avail pre-shipment credit form the advising

bank/nominated bank .The body of the LC
contains a clause in red letter authorising the
nominated bank to grant advance to the
beneficiary , prior to shipment of goods,
payment of which is guaranteed by the
opening bank

Sight LC
The beneficiary is able to get the payment

on presentation of the documents confirming

to the terms and conditions of the LC at the
nominated bank counter

Acceptance credit
In this LC, a Bill of Exchange is drawn with a

certain usance period, and are payable , upon

acceptance at a future date, subject to
receipt of documents confirming to the terms
and conditions of the LC

Deferred credit
It is almost similar to Acceptance credit ,

except that there is no Bill of Exchange or

draft drawn and is payable on a certain future
date

Back to Back LC
When an exporter arranges to issue an LC in

favour of a local supplier , to procure goods

on the strength of the export LC received in
his favour , it is known as Back to Back LC

UCPDC 600
Uniform Customs and Practices for

Documentary Credit ICC 01st July 2007-Paris

UCPDC are universally recognised set of rules
framed by ICC governing LC business and have
become an indispensable tool for international
business. It gives guidance and assistance to all
concerned parties to LC transaction specially
emphasizing upon duties and responsibilities
of opening bank, buyers and sellers, advising
and negotiating banks and reimbursing banks.