INSTRUCTION FOR OPENING A DOCUMENTARY CREDIT
The buyer and seller have agreed a contract for the sale or purchase of goods or services. This raises the issue of payment security. If documentary credits have been chosen, the buyer gives opening instructions to their bank (the issuing bank).
Pre-printed forms based on the SWIFT coding system are generally made available to buyers.
OPENING THE DOCUMENTARY CREDIT
The issuing bank opens (issues) the documentary credit through its correspondent bank in the seller's country.
NOTIFICATION OF DOCUMENTARY CREDIT
The bank notifies the beneficiary of the opening of the credit and adds its confirmation (if applicable). In this case, the bank undertakes to pay the seller if the compliant documents are presented within the allotted time.
SHIPMENT OF GOODS
The seller (exporter) ships the goods in accordance with the conditions and shipping deadline stipulated in the credit, using the mode of transport and Incoterm specified in the contract and mentioned in the credit.
ISSUING THE TRANSPORT DOCUMENT
As soon as the goods have been taken over, the carrier hands the transport document over to the seller, e.g. a bill of lading, air waybill or waybill.
PRESENTATION OF DOCUMENTS
The beneficiary collects the documents required under the documentary credit and presents them to the confirming bank within the specified timeframe.
PAYMENT TO BENEFICIARY
Provided that the documents comply with the terms and conditions of the credit and the deadlines are met, the confirming bank will pay the value of the documents, minus its own costs.
TRANSMISSION OF DOCUMENTS TO THE ISSUING BANK
The confirming bank sends the documents to the issuing bank by express mail in two separate batches to avoid loss of documents.
REIMBURSEMENT TO THE CONFIRMING BANK
The confirming bank will reimburse itself as indicated in the documentary credit.
RELEASE OF DOCUMENTS (BUYER SIDE)
The issuing bank accepts the documents and makes them available to its customer (the principal).
PAYMENT TO THE ISSUING BANK
The issuing bank will debit the customer's account for the same amount as the credit, in addition to its own charges.
CLAIMING GOODS
In the case of a sea shipment, the buyer (the principal), who is in possession of the original bill of lading made out in his behest, is entitled to claim the goods from the goods depository at the port of arrival.
DELIVERY OF GOODS
The goods are handed over to the bearer of the bill of lading (title deed), i.e. the buyer (or their agent). Once the documents have been returned to them via the banking channel, they can proceed with customs clearance and take possession of the goods.