1. Documentary Credit

2. Generic Flow of Documentary Credit
Seller (Beneficiary) Buyer (Applicant)
1. Contract
Goods
5. Shipment/Dispatch 12. Takes Delivery
2. DC Application
11. Settlement
4. Advice of DC
7. Money
10. Documents
6. Documents
8. Documents
9. Reimbursment
3. Documentary Credit (DC)
Advising/Confirming Bank Issuing Bank

3. Definition
A Documentary Credit as an instrument of
settlement of payment obligation between buyer
and seller.
• Letter of Credit : A credit is issued by the
issuing bank and addressed to the Beneficiary
in the form of a ‘Letter’
• Commercial Credit: A credit issued by the
issuing bank in settlement of a commercial
transaction

4. Definition of DC
• Documentary Credit : A Credit is issued by the
issuing bank and requires the presentation of
stipulated documents for compliance
• Standby Letter of Credit: A credit is issued by
the issuing bank to be used for settlement
only where there has been some form of
default or financial guarantee.

5. Roles of Letter of Credit (LC)
Counterparts of a trade are usually located
overseas. Sellers (exporters) and buyers
(importers) have the following concerns when
signing a trade contract:
• Exporter/Seller: What if we ship the goods to
the importer but they don’t pay us the
proceeds?
• Importer/Buyer: What if we are forced to pay
the proceeds but the goods do not arrive?

6. Role of LC
An L/C is a letter issued by a bank to guarantee
the payment of proceeds. The bank, which
issued an L/C, guarantees that the proceeds will
be paid even if the importer goes bankrupt or is
unable to pay for any other reason, on the
condition that the documents satisfying certain
conditions (terms of L/C) are presented.

7. Roles of LC
1. Supplementation of credit of the buyer
(importer) L/Cs make it easier for buyers to
gain trust from sellers in selling their
products.
2. Convenient tool for the seller (exporter)
Sellers will have opportunities to receive
finance for the proceeds from the bank
easily, in the form of negotiation of export
bills.

8. What You Should Know About LC
• U.C.P.600, Uniform Customs and Practice for
Documentary Credits 2007 Revision (UCP 600)
has been established by the International
Chamber of Commerce (ICC), to standardize
interpretations and procedures of L/Cs.
Majority of L/Cs are subject to rules of the UCP.
• L/C transactions entirely based on the
presentation of documents

9. What You Should Know About LC
• Transactions with L/Cs are separate and
independent from export contracts that are
the background of the L/Cs. They are entirely
based on the presentation of documents.
• Therefore, banks issuing L/Cs must pay the
proceeds as written in the L/C so long as the
documents fulfilling the terms and conditions
of the L/C are presented, even if the goods or
their shipment violate the export contract

10. Ilustrasi Jurnal – SIGHT LC
TGL Issuing Bank Advising Bank
2 Feb No Entry
10 Feb N/A N/A  Shipment
11 Feb No Entry
Presentation of Documents
Notify the customers

11. Ilustrasi Jurnal – SIGHT LC
TGL Issuing Bank Advising Bank
14 Feb No Entry

12. Ilustrasi Jurnal – SIGHT LC
TGL Issuing Bank Advising Bank
18 Feb

13. 1. Drawer (ABC Company Ltd.: the customer, negotiation applicant)
2. Amount (US$55,800.00: amount requested for negotiation together with currency indication; within
the unused balance of the L/C, usually in agreement with the invoice amount)
3. Drawee, place of payment (HIJ BANK, New York: the payer and the place of payment of the amount of
the bill indicated in the L/C
4. Maturity (30 DAYS AFTER SIGHT: as required in the L/C)
5. Payee (BTMU: negotiating bank of the bill)
6. Date and place of issue (OCTOBER 10, 2008, TOKYO)
7. Issuing bank of the L/C, L/C No., date of issue (HIJ BANK, New York; HIJLC1234567890; April 10, 2008)
8. Applicant of the L/C (XYZ Corporation New York: payer of the import proceeds)

14. Ilustrasi Jurnal – USANCE LC
TGL Issuing Bank Advising Bank
2 Feb No Entry
10 Feb N/A N/A  Shipment
11 Feb No Entry
Presentation of Documents
Notify the importer
Akseptasi notify advising
bank

15. Ilustrasi Jurnal – USANCE LC
TGL Issuing Bank Advising Bank
14 Feb No Entry