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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?
Documentary 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 blog – Difference 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.
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The above information is a part of Export import business Course online
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