The following are the important documents that may he required under a letter of credit:
1. Bill of Exchange: A bill of exchange is an instruction by the exporter (drawer) to make payment of the amount mentioned in it. The bill may be drawn on the issuing bank or on the importer depending upon the terms of the credit. However, as per UCP 500, the bill of exchange shall not be drawn on the importer. A bill of exchange is a negotiable instrument and is governed by the Negotiable Instruments Act in India and by similar enactments in other countries concerned.
A bill of exchange may be a sight (or demand) bill in which case the drawee is to make payment immediately on presentation of the bill to him. The bill may be a usance bill where the drawee is to make payment after a period specified (say, 39 days or 60 days) if the bill has expired. A usance bill may be on D/A or DIP terms. If it is on D/A terms, the negotiating bank is to deliver the documents to the drawee on the acceptance of the bill by him.
The payment will be made by the drawee on the due date of the bill. For the period from the date of acceptance to the payment, the bank remains unsecured. If it is a DIP bill, the documents will be delivered to the drawee only on payment till which time is retained by the bank. So the bank retains control over the goods till payment is received.
2. Bill of Lading: It is a document issued by the shipping company or its agents acknowledging receipt of goods for carriage which are deliverable to the consignee or his assignee. The letter of credit would generally require a full set, on board, clean bill of lading.
3. Marine Insurance Policy: The goods are covered against perils of the sea by taking a marine insurance policy. The marine policy covers certain basic risks known as perils of the sea and other specific risks contracted for.
4. Commercial Invoice: It is a statement containing full details of the goods shipped. General contents of the commercial invoice used in foreign trade are: (a) the names and addresses of the seller and buyer; (b) details of goods shipped—quantity, quality, description and value; (c) packing details and marks; (d) price and amount payable by the buyer; (e) terms of trade–FOB, CFR, or CIF; (f) details of freight charges, insurance premium and other charges; (g) reference to the sale contract in fulfillment of which the shipment is made; (h) name of the vessel in which the goods arc shipped; and (i) reference to the licence number under which the import is made.
An invoice is not a document of title to goods but is only a description of goods. It serves the purpose of verifying that the goods shipped and the price charged are as per the contract. Though there is no specific proforma in which an invoice is to be prepared, certain countries may prescribe the format in which invoices for imports into their countries have to be prepared. Such requirements have to be kept in view while preparing the invoice.
5. Consular Invoice: It is a special type of invoice, usually in a prescribed form, describing the details of the goods shipped and sworn as being correct in all respects by the exporter before the Consul of the importing country stationed in the exporting country. The Consul of the importing country then certifies the invoice . A consular invoice may also contain a declaration about the place of origin of goods. It would serve the importer in getting the duties assessed and goods released by the customs without much delay. Any false declaration in the consular invoice involves heavy penalty.
6. Certificate of Origin: It declares the place of actual manufacture or growth of the goods. A country may place restrictions on imports from certain countries. Or, preferential treatment may be accorded in tariffs for imports from certain countries. For both these purposes, certificate of origin becomes necessary. Usually such certificates are issued by the Chambers of Commerce or Trade Associations in the exporting country. Sometimes the place of origin may be declared on the commercial invoice itself. In such cases, the invoice would be called a certified invoice.
7. Packing List: The list would contain the details of goods contained in individual packages. This helps in identifying the contents of specific packages and thus may facilitate assessment by the Customs.
8. Weight Note or Certificate. This gives the weight of individual items shipped. If the goods are shipped in bulk, like food-grains, the list may cover the entire consignment. It is generally issued by a public agency. Since the weight certificates are issued by an independent agency, the importer is assured that goods of proper weight have been shipped.