Documentary Credit (DC), popularly known as letter of credit is the most safe and convenient means of paying for exports among all other existing methods of payment. It is widely used to effect payments in domestic and international trade. A written undertaking is issued by a bank (usually referred to as the issuing bank) on the instructions of the buyer of goods to the seller. The payment is made under conditions stated in the undertaking. Payments are always up to a stated limit and against stipulated documents. As per the definition of International Chamber of Commerce (ICC) "documentary credit is any arrangement however named or described whereby a bank, (the issuing bank) acting at the request and in accordance with the instructions of a customer (the applicant), is to make payment to or to the order of a third party (the beneficiary) or is to pay, accept or negotiate bill of exchange (drafts) drawn by the beneficiary, or authorise such payments to be made or such drafts to be paid, accepted or negotiated by a other bank against stipulated documents in compliance with stipulated terms and conditions."
Our team at Trade Operations - Import is dedicated for a quality customer service with a swift and reliable output. We understand our customers' requirement and are also equally concerned for the risks to which our customers are exposed while doing their import transactions. Therefore our team will not only process your requests but will also provide you with important information useful for your business.
Requisites for DC Issuance
Before issuing a DC, you will require to have approved credit limits sanctioned by the bank. In line with the central bank(www.nrb.org.np) regulations, we will require following documents along with the DC Application form for establishing a DC:
Further, the import from India by paying convertible foreign currency (FCY) other than INR is restricted to manufacturing industries in Nepal. The Indian beneficiaries of such DCs should also be a manufacturing industry. Please check NRB regulations for the goods importable from India by paying FCY.
Nabil offers various products to finance your trade, be it import or export. For the importers, Nabil offers Import Loan and Import Bill Discounting.
Features of Documentary Credit
The use of a DC provides enough safeguards for the parties involved.
To the Buyer
To the Seller
Since banks act as trustworthy third parties/intermediaries, the issues relating to trust between the buyer and the seller are taken care of. However to avoid any unseen circumstances, it is advisable that the credibility of the counter parties be always assessed for. Therefore before dealing for a new business, it will be prudent to check whether your bank has the sufficient information on the credibility of the party concerned. NRB has also made it mandatory to obtain Business Credibility Information (BCI) of the overseas parties while doing transaction in the tune of USD 50,000 equivalent or above.
DCs can be either sight or usance depending on whether credit period is extended to the buyer by the seller.
The following diagram elucidates Documentary Credit transaction flow: