AN

INSIGHT TO

EXPORT PROCEDURE & DOCUMENTATION

AT CHAMONG

EXPORT PROCEDURE AT CHAMONG

Export procedure is a system or methodology by which export trade transaction is completed. It involves the study of different steps that are to be taken by the two parties namely the exporter and the importer. The export procedure is lengthy & time consuming. It involves a number of steps right from the time an export order is received and it is completed with the realization of export proceeds. In between there are many formalities is required to be completed. In the export procedure various formalities need to be completed & various documents are required to be prepared by the exporter. Every exporter should have a thorough knowledge of the rules, regulations & procedure required to be followed for exporting the goods abroad.

The procedure of exporting involves the following stages:-

STAGE 1: First of all, searching of customer is done and then export order is received. Usually CHAMONG gets order in three ways:-

Through Internet. Through International Trade & Exhibition.and, Through Global Tender which is floated by the Importer.

STAGE 2:

The export order must specify the mode of payments such as: L/C (Letter of Credit) D/P (Document against Payment) D/A (Document against Acceptance)

At this stage, the company prepares all the necessary documents including Sales Contract required by the buyer and submits to the negotiating bank in exact specified manner. The most important documents demanded by the importer are:-

Bill of Exchange Commercial Invoice Packing List Bill of Lading Marine Insurance Policy Certificate of Origin

STAGE 3:

After getting export order from the desired country, CHAMONG enters into a contract with it. Once the order has been received, the export order is scrutinized with reference to the terms & conditions of the export contract. This is the most crucial stage. All subsequent actions and reactions will depend on these terms & conditions.

It is ensured that contract has been entered into in accordance with the prevalent export policies of the country and Foreign Exchange Regulations like FERA and FEMA.

STAGE 4:

As soon as the export order has been confirmed, preparations for the dispatch of Teas are started. After Agreement, the manufacturing order is sent to the production manager by the marketing department of CHAMONG. This order contains the description of Teas as has been given in the export order, alongwith the copy of the instructions given by the importer. The date by which the teas must ready is clearly intimated to the production manager and advice the material procurement for assuring the availability of the items required for the teas on the basis of work order, manufacturing starts.

STAGE 5 :

After manufacturing, inspection is carried out by the quality assurance deptt. of CHMONG, as final inspection is done by the IMPORTER, if the importer so desires.

STAGE 6 :

As soon as the teas are manufactured, production manager informs the marketing department

that the goods are ready to dispatch. At this stage, two important documents are to be prepared :-

ARE 1 form CT 1 form

ARE 1 form is prepared in quantiplicate and CT 1 form is prepared in quadra duplicate. CT forms are issued by the exise department. ARE1 forms are presented to the Range Superintendent of Central Exise , who after necessary formalities signs all the copies. The original & duplicate copies are given back to the exporter. The triplicate copy is sent to the maritime collector, fourth copy is sent to the Chief Accounts Officer & the remaining copy is kept by the office of Range Superintendent. The other authority which the export department approaches immediately at this stage is the Export Inspection Agency for conducting Quality & Pre-Shipment Inspection. An inspector is deputed by the Inspection Agency to inspect the consignment. If the teas are confirmed to the prescribed specifications, an Inspection Certificate is issued.The teas are then dispatched to the port of shipment.

STAGE 7:

After the teas have been dispatched to the port of loading, a dispatch advice is sent to the export department. Soon after an application is sent to the Insurance Company for Marine Insurance Cover. The

Insurance policy is obtained in duplicate.At this stage all formalities in relation to ECGC cover, Certificate of Origin, Consular Invoice etc. wherever necessary is completed.

Thereafter the export department sends the following documents to its clearing & forwarding agent along with detailed instructions:-

Commercial Invoice Original Export Order Original Letter Of Credit ARE1 form (original & duplicate copies) Excise Gate Pass Packing List Certificate of Inspections Declaration Form in Triplicate Consular Invoice Export License Railway Receipt

STAGE 8:

The Clearing & forwarding agent takes the delivery of the consignment from the railways & arranges its storage & warehouse. Thereafter the agent prepares the requisites copy of shipping bill.

STAGE 9: After the shipping bill has been prepared & passed by the customs, the Clearing & forwarding

agent presents the port trust copy of the shipping bill to the shed superintendent of the port trust & obtain carting order for bringing the export cargo in the transit shed for physical examination. Thereafter, in the case of shed cargo, the dock challan is prepared. The following details are given in the dock challan:-

Consignee’s name & address Vessel name Port of destination Exporter’s name Mark & No. of packages Gross weight Port charges payable Other details as necessary

STAGE 10:

The ship clerk calls for cargo from shed & after loading prepares the mate’s receipt. The mate’s receipt is signed by the captain of the ship. It is then delivered to the port commissioner’s shed. The clearing & forwarding agent pays the port charges & takes the delivery of the mate’s receipt. This mat’s receipt is then presented to the shipping company along with the requisite no. of Bill of Lading.

STAGE 11:

The clearing & forwarding agent forwards the following documents to the exporter:-

Full set of Bill of Lading Shipping Bill Copies of Custom Invoice ARE1 form One copy of commercial Invoice duly attested by the customs Original Export order Original Letter of Credit Railway concession form duly attested by the customs

STAGE 12:

As,soon as the exporter (CHAMONG) receives the above documents from the clearing& forwarding agent, completes the remaining formalities. The exporter files a claim with maritime collector of Central Excise in the port town for rebate of Central Excise duty, side by side, shipment advice is sent to the importer. The following documents are forwarded along with the shipment advice:-

A non negotiable copy of the Bill of Lading Customs Invoice Commercial Invoice Packing list Certificate of Origin Single country declaration

STAGE 13:

The following documents are presented to the negotiating bank:-

ARE 1 form (Duplicate copy) Bill of Exchange Full set of Bill of Lading (All the negotiating copies) Letter of Credit (original) Commercial Invoice (Two copies) Custom Invoice (2 copies) Packing list (2 copies) Certificate of Origin (2 copies) Marine Insurance certificate (2 copies) Bank Realisation Certificate (2 copies)

STAGE 14:

This is the last stage of export procedure. At this stage the bank processes & negotiation is done in the following manner:-

The entire documents are scrutinized with reference to yhe terms & conditions of the original Letter of Credit (In case of L/C payment terms)

Thereafter a set of following documents is transmitted to the banker of the importer by the first air mail followed by the second set of it by the second air mail to ensure that in case the first is lost, the importer can take the delivery of the consignment on the basis of second set of documents. These set of documents are:-

Bill of Exchange Negotiable bill of lading Commercial Invoice Customs Invoice Insurance policy Certificate of Origin Consular Invoice Packing list

The original copy of the bank certificate along with the attested copies , the commercial invoice is returned to the exporter. The duplicate copy of the bank certificate is forwarded to the office of the Director General of foreign trade in the area.

WORKING OF THE MARKETING DEPARTMENT i.e, EXPORT

DOCUMENTATION AT CHAMONG

Export Documentation at CHAMONG is done by the marketing department upto the stage of manufacturing and turning out from CHAMONG.

Documentation is mainly done to give justification before Reserve Bank of India of foreign exchange transaction which is carried out in Export process. Thus, Export documents represent the total Export procedures.

Mainly the Export Documents can be divided into two types:-

EXPORTEXPORT DOCUMENTSDOCUMENTS

COMMERCIAL DOCUMENTS

REGULATORY DOCUMENTS

(A) COMMERCIAL DOCUMENTS :-

These documents are used by ‘Custom of Trade’ in International Commerce by exporters and importers in discharge of their respective legal and other incidental formalities under Sales contract. Commercial Documents can be further divided into two types of documents which are as follows:-

PRINCIPAL DOCUMENTS AUXILIARY DOCUMENTS

1. PRINCIPAL DOCUMENTS :-

These documents are required for effective physical transfer of goods and title thereto from exporter to importer. Following documents come under this category:-

Realization of Export Sale Proceeds Commercial Invoice and Invoice prescribed by Importing

Country Packing List Certificate of Inspection Certificate of Insurance/Insurance Policy Bill of Lading or Combined Transport Documents Certificate of Origin Bill of exchange Shipping Advice

2. AUXILIARY DOCUMENTS :-

These documents are required in connection with preparation or procurement of Principal Export documents. Following documents are Auxiliary documents:-

Pro forma Invoice Shipping Instruction Insurance Declaration Intimation for Inspection Shipping Order Mate’s Receipt Application for Certificate of Origin Letter to Bank for negotiation or collection of documents

(B) REGULATORY DOCUMENTS :-

These documents are prescribed by different Government Department/Bodies for compliance of formalities under relevant laws, rules and regulations governing export trade viz. FERA ,Import & Export (control) Act, Central Excise Rules, Export (Quality Control &Inspection) Act, Customs Act and Major Port Trusts Act etc

Following documents are of Regulatory nature:

Exchange Control Declaration-GR Forms Freight Payment Certificate Insurance Premium Payment Certificate Gate Pass-I/II ARE-1/ CT-1 Forms Shipping Bill/Bill of Export Port Trust Copy of Shipping Bill/ Export Application/ Dock

Challan Receipt for Payment of Port Charges Vehicle Ticket

Broadly we can classify the total working in the three stages. They are:-

1) Pre Shipment Documentation2) Shipment Documentation3) Post Shipment Documentation

1. PRE-SHIPMENT DOCUMENTATION :

Pre shipment procedure starts from the very beginning i.e. receiving the order and it ends with handling over the goods to the transporters. In the case of Advance payment following documents come under Pre shipment documents:-After receiving the export order, Sales Contract is sent to buyer his is resent by buyer after putting their seal along with the 30% of total Invoice value (in the case of

advance payment) then after packing of goods, Packing Slip is sent from the Packing Department, with that Slip ,Packing list is prepared in Commercial section. After checking Packing List thoroughly, Invoice is prepared and then both Packing List as well as Invoice is sent to buyer to get the remaining 70% of the payment. When they make total payment goods are sent to them.In this procedure, first of all goods are handled over to the transporter. Then transporter gives whole goods to Clearing Agent.

2. SHIPMENT DOCUMENTATION :

After taking over the whole goods by Clearing Agent, Shipment Procedure is started. If Consignment is going to be exported by Sea, goods are sent from the company to Kolkata. Shipping Instruction (3 Copies) is sent to Clearing Agent which contains the information about consignment. For e.g. Dimension of Cartons i.e. No. and Size of Cases, Detail of items, Name of Transporter etc.When goods are loaded on to the Ship/Aero plane Challan is provided by the owner of Ship/Plane. Challan, Bill of Clearing agent (in the case of FOB), Invoice and ARE (Application for Removable of Excisable goods) are sent to Buyer.Terms of Delivery means in delivering the goods to the Buyer which cost will be included whether it will include only

cost of production or it will also include transportation costs. Mainly there are three terms of Delivery:

FOB (Free on Board):- It is also called as Freight on to-pay

Basis that means freight charges will be paid by Buyer.

C.I.F. (Cost including Insurance & Freight):- It is also called as Freight on Pre-Paid Basis that means Freight charges will be paid by Exporter and Goods will be insured.

C&F (Cost including Freight):- It means only Freight charges will be paid by exporter and Insurances charges will be covered by buyer itself.

3) POST SHIPMENT DOCUMENTATION :-

Post shipment Documentation start when goods are reached at their destination then to clear the goods from the customs in the Importer Country some documents are needed. Which are as follows:-

Shipping Advice: - It is sent as covering letter. it contains details of Consignment and clearing agent .

Invoice (2 copies) Packing List (3 copies) Bill of Lading (1 original & 1 Xerox) Shipping Bill (Original):- Shipping Bill is provided by

Customs of India to the Clearing Agent of the Company after checking of goods. Without Clearance of Customs no export can take place. It has all the details of Export Order like details of items, Invoice value of total consignment, Foreign Currency involved, Exchange Rate, Draw back details, Date of Export etc. This shipping Bill is needed at the customs of Importer’s Country as well as Bank of Exporters to get the Payment. It is divided into two sections:

1. Exchange Control Copy : - First two Pages of Shipping Bill in which Exchange Rates and Freight charges,

Insurance Charges (if applicable) are indicated, are called exchange control copy.

2. Export Promotion Copy : - Govt. give export incentive on certain items so, in Shipping Bill all details are given regard in Drawback like their rates and amounts.

DOCUMENTS SENT TO BANK

Invoice (2 Copies) Packing List (original) Exchange Control Copy of Shipping Bill (original) Bill of Lading (2 Copies) Copy of Original FIRC (Foreign Inward Remittance

Certificate)

When all the documents are sent to bank, whole transaction is justified and then Bank sends Reference No.. With that Ref. No. Bank Realization Certificate is made in the Company which is again sent to Bank after 6-8 months Bank sends that Certificate to the Company by putting their own seal. This is the last document in any Export Order.

DOCUMENTS USED IN EXPORT TRADE :

Documentation is important from the view point of exporter as well as the overseas buyer. If some of the documents are not produced before the appropriate authorities, the importer may find it difficult to clear goods or he may have top pay heavy import duties at a higher rate. In certain cases, the goods may not be permitted to land or may be detained.

In such a case, the payment of demurrage or penalty is unavoidable. On non presentation of certain documents, the Exchange Control & custom Authorities may take a severe action & it may require payment of heavy penalty. Hence, an exporter must have complete knowledge of the intricacies involved in the handling of the export documents.

The various documents used are related to the following:-

Documents related to Goods Documents used for shipment Documents related to Bank Processing Official documents Documents related to Payment

Let’s have a close outlook of all these documents......

1) SALES CONTRACT

It is a legal contract of exchange of goods, services or property to be exchanged from seller to buyer (in case of export: from exporter to importer) for a pre-decided value in money or money equivalent paid or promised to pay same. It is a specific type of legal contract in which all details regarding trade which is going to take place between any two countries. It contains:-

Contract No. Invoice of Delivery Period Date Port of Loading Port of Destination Mode of Payment Exchange Rate Invoice Packing Description Freight Charges Insurance Charges Name of Seller’s Bank Description of Goods

2) COMMERCIAL INVOICE

This is a basic export document. It is a record or evidence of transactions between the exporter and the importer. It is similar to an ordinary sales invoice except some entries specific to the export and import trade are added.

It is also called ‘document of contents’ because it generally contains all the information required for preparation of all other documents.A commercial invoice is the seller’s bill of merchandise. There is no standard format for commercial invoice but usually it contains the following:-

Exporter’s Name & Address Invoice No. Date Buyer order No. Consignee Name Buyer Name and Address Country of origin of goods Country of final destination Terms of Delivery & Payment Pre Carriage by Vessel/Flight No. Port of Loading Port of Discharge Final Destination of Goods Marks & Nos Number of Packages Description of Goods Container No. Quantity Rate Amount Declaration Signature of Authority

3) PRO FORMA INVOICE

A pro forma invoice is a very common international document, despite its name; it is not an invoice at all but a quote.

An international transaction includes so many variables that it is sometimes difficult for importer to have a good grasp of final cost of goods. For e.g. the cost of goods is increased by the cost of shipping, insurance and so forth. In order to determine these costs the import may request for a pro forma invoice which helps in determining the accurate and precise preview of actual invoice which is usually prepared when a transaction is going to take place. In those cases when exporter requests payment on a ‘letter of credit basis, the information contained in pro forma invoice is used by issuing bank to open the letter of credit. It contains:-

Name & Address of the Seller Name & Address of the buyer Date Delivery Time Terms & Conditions Port of Loading Port of Discharge Terms of Trade Freight to be covered by Insurance to be covered by Banker’s Name Mode of Transport Currency used Description of Goods Signature

In some exporting countries, the term ‘sales confirmation’ is used in view of the term ‘pro forma invoice’.

4) PACKING LIST

It is an extension of commercial invoice, as such it looks like a commercial invoice. The exporter or his/her agent , the custom broker or the freight forwarder reserves the shipping space based on the gross weight or the measurement shown in the packing list. Custom uses the packing list as a checklist to verify the outgoing cargo (in exporting) and the incoming cargo (in importing). The importer uses this packing list to inventory the incoming consignment.

Contents of packing list:

Package no. Item no. Exporter’s Name & Address Invoice No. Date Buyer order No. Consignee Name Buyer Name and Address Country of origin of good Country of final destination Terms of Delivery & Payment Pre Carriage by Vessel/Flight No Port of Loading Port of Discharge Final Destination of Good Marks & Nos. Container No. No. & Kind of Packages Description of Goods Quantity of Goods Remarks, if any

5) PACKING SLIP

As the name suggests, packing slip is the detailed description of product. It is prepared by the packing department.

Contents of packing slip:

Item code Quantity Rate Actual unit Net weight Gross weight Packing slip no. Order no. Date Signature of the checking authority

6) CERTIFICATE OF ORIGIN

Certificate of origin is a shipping document which the exporter sends along with the other documets to the importer. As the name indicates, it

is a certificate indicating the fact that the goods which have been exported have originated or manufactured in a particular country.

This certificate is issued by Chamber of Commerce of exporter’s country of the government, or by some other authorized agency like Export Promotion Council . This is a document which is mostly required by Common wealth Countries. The main aim of this certificate is to enable the importer to get concessional tariffs.

Contents of certificate of origin:

Exporter’s business Name, Address & country Consignee’s Name, Address & country Means of Transport & Route Item No. Marks & Nos. of Packages No. & Kind of Packages, description of goods Origin of country Gross Weight & other quantity No. & Date of Invoices Certification & Signature by Chamber of Commerce Declaration & Signature by Exporter

7) CERTIFICATE OF INSPECTION

For ensuring the quality government has made it compulsory for certain products that these should be inspected by some authorized agency. EXPORT INSPECTION COUNCIL OF INDIA (EICI) is one such agency which carries out such inspections and issues the certificate that the consignment has been inspected as required under the Export Quality Control and Inspection Act, 1963 and satisfies the conditions relating to quality control and inspections as applicable to it and is export worthy. Some countries have made it mandatory for the goods being imported to their countries It contains:-

Beneficiary Name & Address Applicant Description of the Goods Bill of Lading quantity For Transportation to Remarks Item wise/Size wise Break up of Quantity

8) CERTIFICATE OF MEASUREMENT

It is a document provided by an independent inspection company that attests the goods confirm to the measurement described & purity levels contained in the invoice provided by the exporter.

Contents of certificate of inspection:

Name of the authority giving measurement certificate Date Shipper’s name Clearing house agent name Clearing house no. Shipping Bill No. Steamer agent name Measurer signature Port of destination No. Of packages Service charges Marks & no. Measurement of quantity

1) MATE’S RECEIPTIt is issued by the chief of vessel after cargo is loaded and it is duly signed and stamped by Chief Officer or Master of vessel. The shipping company does not issue the bill of lading unless it receives the Mate’s receipt.It contains:-

Mate Receipt No. Shipping Bill No. Date Voyage Exporter’s Name CHA Name Marks Quantity of Goods Description of Goods Cargo Weight Consignee Name Terminal or Chief Officer signature

2) SHIPPING BILLThe shipping bill is the main document on the basis of which customs office grants the permission for export. After loading the goods on ship, it is prepared by the clearing agent but it is mainly needed to justify the goods going to be exported.The shipping bill is generally prepared in five copies.

Contents of Shipping Bill:

CHA Name Date State of Origin Exporter’s Details Consignee Port of Loading Port of Discharge Gross Weight Total Packages Net Weight Country of Destination Nature of Cargo Marks & Nos. Foreign Exchange Bank A/C No. RBI Waiver No. Invoice Details Exchange Rate Insurance Charges Freight Charges Discount Commission Packing Charges Draw Back Description Nature of Payment Buyer Name & Addres

3) BILL OF LADINGA Bill of lading is a document of title of goods which is issued by the shipping company upon the shipment of goods. It serves as a receipt for goods, an evidence of the contract of carriage, and a document of title of goods. The carrier issues the B/L according to the information in the mate’s receipt. The B/L must indicate that the goods have been loaded on board or shipped on a named vessel, and it must be signed or authenticated by the master of the ship. It is simply a contract between the exporter and the shipping company. The bill of ladin is usually prepared in 3 sets of originals, anyone of which can give the title of goods. The shipping company also issues non-negotiable copies which can’t give title to goods but are issued for record purpose.

Contents of Bill of Lading:

Shipper’s Name Consignee Notifying Party Pre Carriage by Place of Receipt by Pre Carrier Ocean Vessel Port of Loading Port of Discharge Marks & Nos. No. of Packages or Units Kind of Packages, description of Goods Weight of Goods Voyage no. Whether freight paid or payable Other relevant details

4) MARINE INSURANCE POLICY CERTIFICATE

It provides cover against perils of sea and other connected risks to which goods are exposed to. It is same as any other insurance and usually done to minimize the risk related to shipment of goods.

Contents:

Certificate No. Open Cover No. Open Cover Date Assured Name Address of the Assured Receipt Date Effective From Issued at Net Premium Name of the Issuing Company Total Sum insured Sum Insured in Foreign Currency Basis of Valuation Country of Destination Mode of Transport Packaging Description Commodity Description Terms of Insurance

5) CART TICKET

A cart ticket is also known as a cart chit, vechile or gate pass and is prepared by the exporter.

Contents of cart ticket:

Shipper’s name No. Of packages Shipping Bill no. Port of destination No. Of vechiles carrying the cargo

1) BANK REALISATION CERTIFICATE

This certificate contains the information of export consignment and as to be submitted to the bank for each and every consignment.The information required for making bank certificate is obtained by various shipment documents named as Invoice, Shipping Bill, Bill of Lading, Airway bill, Insurance bill, Freight Memo etc Three copies of ‘bank certificate’ addressed to the “JOINT DIRECTOR OF FOREIGN TRADE” is prepared and submitted to bank. Copies of Export Invoice, custom attested EP (Export Promotion) copy of Shipping Bill and other relevant documents are also submitted along with the Bank CertificateThe Bank Certificate is declaration by the exporter that they have forwarded the documentary export bill to its bank for the collection or negotiation or purchase as per particular given in Bank Certificate. The bank verifies the information given by the exporter and certifies the same. The bank passes the original copy with the relevant copy of attested documents to the exporter and duplicate copy to the Licensing Authority. Bank retains the triplicate copy for its record.It contains:-

Invoice No. Export Promotion Copy of Shipping Bill duly-authenticated by

custom Description of Goods as given in Custom Authenticated-

Shipping Bill Bill of Lading No. Destination of Goods Bill Amount Foreign Exchange used Freight Amount as per Bill of Lading Insurance amount as per Bill receipt Date of Realization of export proceeds SDF (Sales Declaration Form) Form No. & Signature of

Exporter

2) BANK COVERING LETTER

This is a letter issued to bank after shipment of goods.Mostly it is issued in case of advance/ Document against payment (D/P) /Document against acceptance (D/A). The functioning of this document is for bringing own balance of payment through bank. Through this letter exporter informs to the bank that how much price to take from the buyer.

3) EXCHANGE EARNERS FOREIGN CURRENCY

It is a type of current account. In this account, there is only foreign currency, when the buyer pays the price for the goods & transfers the payment through bank to bank. Party’s payment comes in this account & is kept in the form of foreign currency. When the company wants indian currency, i.e., rupees, then it writes a letter to bank for foreign currency conversion into rupees.

4) FOREIGN INWARD REMITTANCE CERTIFICATE This is a document which is prepared by the exporter addressing the bank to which the payment has been made by the buyer asking him to transfer the payment to his bank or to bank in which he has to receive money.

1) BILL OF EXCHANGEIt is a written instrument whereby the person issuing it directs the other party to pay a specified amount to a certain person or to bearer of the instrument i.e. bill of exchange.In the context of an export-import transaction, bill of exchange is drawn by the exporter. According to which importer are to pay a certain amount to a certain person or to the bearer of bill of exchange. Export consignment is passed on to the importer only when the importer’s order contains bill of exchange.It contains:-

Amount of bill Place Name & Address of the Bank in which amount is to be paid Order by exporter Invoice No. Name & Address of the import Exporter’s Signature

2) LETTER OF CREDIT

A Letter of credit is very common and familiar document in setting payment between buyer and seller. It is a signed instrument embodying an undertaking by the bank of the buyer to pay the seller a certain sum of money on presentation of documents evidencing shipment of specified goods and subject to compliance with stipulated terms and conditions. The International Chamber of Commerce (ICC) has a published a set of universal recognized guidelines governing the issue of a Letter of Credit in Uniform Custom and Practice of Documentary Credit (UCPDC).

Following parties are involved in issuing a letter of credit:-

1. APPLICANT : - The firm asking for a Letter of Credit is applicant. Usually the applicant is importer who is going to import goods but it is not in position to pay for the goods currently.

2. BENEFICIARY : - The firm named in a letter of credit as the firm to

whom the bank is insuring payment if the importer does not pay. Usually, the beneficiary of a letter of credit is the exporter.

3. ISSUING BANK : - It is that bank which provides the letter of credit to the importer. It has the contractual obligation to pay the beneficiary (exporter) on the presentation of necessary documents by them when importer is unable to pay.

4. ADVISING BANK : - In a Letter of Credit transaction, the bank that determines whether the issuing bank is a legitimate bank and the terms of the Letter of Credit offered by the issuing bank on behalf of the importer are appropriate. Generally, the advising bank is the exporter’s regular bank. But in some cases the exporter’s bank will delegate this role to another bank which is more experienced.

LETTER OF CREDIT

(PAYMENT PROCEDURE)

The Letter of Credit (L/C) payment procedure is usually as follows:-

The Importer applies to open the L/C to exporter through a bank that can open the L/C in their country.

The opening Bank will inform the exporter that has been established.

Exporter checks all the terms and conditions listed in the L/C. If all the terms and conditions are acceptable the will arrange the shipment within the time specified in the Letter of Credit.

After the goods are loaded onto the ship without anydamage, the captain of the ship will issue clean Bill of Lading to the exporter. With clean Bill of Lading only they can claim the ownership of goods.

Clean Bill of Lading and other relevant documents will be submitted to their bank to gather the irrevocable Letter of Credit. It is an often used payment method. This is a formal payment method that offers a lot of protection to the parties. In simple words, a Letter of Credit is a letter written by the importer’s bank to the exporter. It verifies that the payment will be guaranteed when bank is presented

with concrete documents (Bill of Lading, Freight documents etc.). Mostly Letters Of Credit are irrevocable once the importer has sent them.

A Letter of Credit usually includes applicant (the importer), beneficiary (I/E agent), opening bank, negotiating bank, specification and quantity of the goods, amount of money, loading port and destination port, shipment date, the validity date of the L/C, terms and conditions agreed by both the importer and exporter and details of the documents required by the importers (Bill of Exchange, Commercial Invoice, Packing List, Insurance Certificate etc.)

The exporter’s bank will send the clean Bill of Lading and relevant documents to opening bank.

Opening bank will inform them that all documents are received.

Then importer will go to the bank to make the payment to get the clear Bill of Lading and relevant documents.

With all of these documents, they can clear the import customs and pick up the goods after the goods have arrived on the destination sea port.

L/C is used for the larger quantity order shipped by the sea.

The typical L/C scenario takes 14-21 days to complete.

STEPS IN PROCESSING OF A LETTER OF CREDIT

The main steps in the processing of a Letter of Credit are as follows:- Issuance of a Letter of Credit Shipment under a Letter of Credit Payment under a Letter of Credit

1. ISSUANCE OF A LETTER OF CREDIT:-

We can understand the first and foremost step of processing of a Letter of Credit with the help of following diagram:-

a. First of all the exporter and the importer agree on a sale under “Letter Of Credit” terms. The exporter sends a pro forma invoice to importer.

b. Then importer takes the pro forma invoice to its bank and requests for a Letter of Credit.

c. The importer’s bank issues a Letter of Credit and sends it to the exporter’s bank.

d. The exporter’s bank receives and revises the Letter of Credit. Then it notifies the exporter that it is ready to ship the merchandise to the importer.

2. SHIPMENT UNDER A LETTER OF CREDIT:-

EXPORTER’S BANK IMPORTER’S BANK

EXPORTER IMPORTER

a. The exporter sends the merchandise to the importer but gathers all the documents and sends them to the exporter’s bank.

b. The exporter’s bank checks that whether the documents

fulfill the requirement of Letter of Credit or not and then sends them to the importer’s bank.

The importer’s bank also verifies the documents that they match with the requirement of Letter of Credit and notifies the importer.

3) PAYMENT UNDER A LETTER OF CREDIT:

EXPORTER’S BANK IMPORTER’S BANK

EXPORTER IMPORTER

a. The importer pays the importer’s bank in order to collect the documents that will be needed to collect the merchandise and clear the customs.

b. The importer’s bank sends the importer’s payment to exporter’s bank.

c. The exporter’s bank notifies the exporter that they have been paid by importer.

EXPORTER IMPORTER

EXPORTER’S BANK

IMPORTER’S BANK

1) PURCHASE ORDER

A purchase order is a commercial document issued by buyer or seller, indicating the type, quantities & agreed price for products, the seller provides to the buyer. Sending a purchase order to a supplier constitutes a legal offer to buy a product.

Contents of purchase order:

Serial no. Order date Order by Order dare Due date Product description

2) MANUFACTURING ORDER

Once the order is being placed, the next step is to finalize the details as to how the products are to be manufactured

Contents of manufacturing order:

Manufacturing order no. Due date Shipment date Port of loading Shipment made Order status Product instruction General instruction Port of destination

3) EXPORT ORDER MONITORING FORMAT

This is the review of the export order received & its execution by the exporter who discusses about the following:-

Format no. Revision no. Order no. Due date of delivery Dispatch date Expected date of delivery

BIBLIOGRAPHY

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