Difference between Documentary credit and Documentary Bill

 

 

 

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Difference between Documentary credit and Documentary Bill

 

What is Documentary Credit? How does a Documentary credit work in international business? How does a Documentary credit differs from Documentary bill? How is the mechanism of Documentary Bill?

In this article let me explain about the main distinctions between Documentary Bill and Documentary Credit under Letters of Credit. I have posted one more article related to this post under a head – Difference between bill discounting and bill negotiation. You may read the same also to have an understanding about Documentary credit and documentary bill with the difference.

What is Documentary Bill?

Under a Documentary Bill, bank opens no letter of credit. Bank functions as an agent for collection of the bill. The role of bank is that of medium only. There is no commitment on the part of bank for any payment, whatsoever. In case of DA bill, importer gets documents of title to goods, on acceptance of the bill. Exporter gets payment only if importer makes payment. If importer fails to make payment on due date, exporter has no alternative other than filing a civil suit against importer as it is not legally possible to get back possession of goods. There is no risk in case of non-payment, an important advantage form the viewpoint of the exporter.

What is Documentary Credit under Letter of Credit?

Difference between Documentary credit and Documentary Bill copyDocumentary Credit under Letters of Credit is opened by bank at the instance of the applicant(importer). Here, the bank that has opened the letter of credit assumes the responsibility to make the payment, on presentation of the documents specified in the letter of credit. So, exporter is sure of receiving the payment, once the documents specified in the letter of credit are presented. Exporter is not concerned with the creditworthiness of the importer. Neither credit risk nor political risk – in fact, no risk exists for receipt of payment if the exporter, scrupulously, follows conditions in the letter of credit.

Also read my article in this web blogDifference between Bill discounting and Bill negotiation.

 

Documentary Bills: Under this method of payment, bank opens no letter of credit. Bank functions as an agent for collection of the bill. The role of bank is that of medium only. There is no commitment on the part of bank for any payment, whatsoever. In case of D/A bill, importer gets documents of title to goods, on acceptance of the bill. Exporter gets payment only if importer makes payment. If importer fails to make payment on due date, exporter has no alternative other than filing a civil suit against importer as it is not legally possible to get back possession of goods. In case of D/P bill, if importer fails to make payment, exporter gets back the document of title to goods. There is no risk in case of non-payment, an important advantage from the viewpoint of the exporter.

Documentary Credit under Letters of Credit: Letter of credit is opened by bank, at the instance of the applicant (importer). Here, the bank that has opened the letter of I credit assumes the responsibility to make the payment, on presentation of the documents specified in the letter of credit. So, exporter is sure of receiving the payment, once the documents specified in the letter of credit are presented. Exporter is not concerned with the 'creditworthiness of the importer. Neither credit risk nor political risk- in fact, no risk exists for receipt of Payment if the exporter, scrupulously, follows conditions in the letter of credit.

I hope I have explained about Documentary credit and Documentary Bill in simple terms to make you easily understand. Have you enjoyed reading this article about the difference between Documentary Bill and Documentary Credit in simple language? Would you like to share your experience in handling Documentary credit under Letter of Credit and Documentary Bill? You can add your experience and knowledge about the difference between Documentary credit and documentary bill.


Comment below your thoughts about this article – Difference between Documentary bill and Documentary credit under Letter of Credit.

 

The above information is a part of Export import business Course online




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Comments


Nikhil Mohan: Hi, Thank you for sharing information. Can you please throw some light on cases when an importer has to opt for Documentary bill rather than Documentary credit. And in a case of an SME exporter what should be his first priority if they are exporting for the first time? Thanks in advance

Vipul Garg : I am Vipul Garg from Taraori .I want to start a export business for agro products and I have a little bit finance .plz give me advice hw to start that bsnss and I hv no license for export plz give me cmplt knowledge about that . Your book / cd is avilable in market so that I get some idea for that

Mukesh: I am very new to this import business and I need some help how to start this import business, If you guide me step by step, it will be very helpful to me.

HARDEEP BHATIA : Will u please help me to clear a concept about advance lic which I have read in Export Procedure I couldn't understand it so I request you to clear me about it given below (a) CIF value of one or more such authorisations shall be maximum 500% of FOB and / or FOR value of preceding year’s exports and / or supplies in case of status holders and Rs. 5 crore or 500% of the FOB and / or FOR value of preceding year exports and / or supply, whichever is more, for others.

Admin: Mukesh, You may read articles in this website about detailed information on import and export procedures.

Admin: HARDEEP BHATIA, Please read posts related to DEEC/ADVANCE LICENSE in this website. You can collect more information from Director General of Foreign Trade DGFT at your location.

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