There are six stages missing from the following list of a documentary credit
transaction between a Spanish exporter and an American Importer. Put the stages
in the correct order in the list.
1. A Spanish
exporter and an American buyer (importer) agree a sales contract. Payment
will be made by documentary credit.
issuing bank asks the Spanish bank to confirm/advise the credit line.
Spanish exporter sends the goods to the American buyer.
Spanish exporter gives the shipping documents to the Spanish bank (which
is the bank holding the credit).
Spanish bank sends the documents to the issuing bank.
11. The issuing bank
gives the documents to the American buyer.
Now listen to an interview with a banker who explains the same stages. Are
your answers correct?
Now listen to the interview again, read the transcription and write the
- First of all, what is the different between a
letter of credit and documentary credit?
- None, it’s the same thing. It’s just that documentary credit is
generally accepted as being the correct term, although letter of credit is
a very common term in Shipping..
- So how would you documentary
- Well, it’s really an arrangement where a bank, operating on the
instructions of an importer,
another bank to pay a
of money to an exporter on production of specified documents.
- Could you explain how a documentary credit works?
- Yes, to begin with there has to be a sales contract between a
, or producer, and an importer, and
the sales contract must include an arrangement for
through a documentary credit.
The next step is for the company which is importing to tell its bank to
provide a .
This means that a documentary credit is provided in the exporter’s favour.
The bank that issues the documentary credit is called the issuing bank.
Then, the issuing bank asks another bank (usually the exporter’s bank) in
the exporter’s country to the
credit line by telling, or we say ,
the exporter that the credit has been arranged. The bank that does this is
known as the advising bank because it advises when the credit line is
The next step is for the advising bank to send the
to the exporter. When this has
been done, the exporter can send the goods to the importer.
In the next stage, the exporter gives (we say
) the documents to a bank…er…usually
the advising bank. The bank checks the documents to make sure that
everything is okay, and then the bank pays the exporter.
Then the documents are sent to the issuing bank in the importer’s country.
The issuing bank checks them again and pays the same amount of money to
the advising bank.
- So this is where the company that is importing pays the issuing
- That’s right. It’s usually paid by a simple
- And is that the final stage of the documentary credit?
- No, not quite. Finally, the issuing bank
the documents to the importer.
The importer needs these documents in order to receive
of the goods.
- I see. Hmm. It’s not a simple process, is it?
- No, it isn’t. But it’s accepted internationally and, most of the time,
Listen to the interview again and read the complete transaction.