AMR-303 “International Trade and Export Management” (2+1)

Export Procedure OR Procedure to Become an Exporter

Introduction: India’s Foreign Trade i.e. Exports and Imports are regulated by
Foreign Trade Policy notified by Central government in exercise of powers
conferred by section 5 of foreign trade (Development and Regulation) Act 1992.
Presently Foreign Trade Policy 2015-20 is effective from 1st April, 2015. As
per FTD & R act, export is defined as an act of taking out of India any goods by
land, sea or air with proper transaction of money.

Export Procedure: Export in itself is a very wide concept and lot of

preparations is required by an exporter before starting an export business. To
start export business, the following steps may be followed:

1) Establishing an Organisation: To start the export business, first a sole

Proprietary concern/ Partnership firm/Company has to be set up as per
procedure with an attractive name and logo.

2) Opening a Bank Account: A current account with a Bank authorized to deal

in Foreign Exchange should be opened.

3) Obtaining Permanent Account Number (PAN): It is necessary for every

exporter and importer to obtain a PAN from the Income Tax Department.

4) Obtaining Importer-Exporter Code (IEC) Number: As per the Foreign

Trade Policy, it is mandatory to obtain IEC for export/import from India. Para
205 of the FTP, 2015-20 lays down the procedure to be followed for obtaining
an IEC. An application for IEC is filed online at www.dgft.gov.in as per ANF
2A, online payment of application fee of Rs. 500/- through net Banking or
credit/debit card is made along with requisite documents as mentioned in the
application form.
5) Registration cum membership certificate (RCMC): For availing
authorization to import/ export or any other benefit or concession under FTP
2015-20, as also to avail the services/ guidance, exporters are required to obtain
RCMC granted by the concerned Export Promotion Councils/Commodity
Boards/ Authorities.

6) Selection of product: All items are freely exportable except few items
appearing in prohibited/restricted list. After studying the trends of export of
different products from India proper selection of the product(s) to be exported
may be made.

7) Selection of Markets: An overseas market should be selected after research

covering market size, competition, quality requirements, payment terms etc.
Export promotion agencies, Indian Missions abroad, colleagues, friends, and
relatives might be helpful in gathering information.

8) Finding Buyers: Participation in trade fairs, buyer seller meets, exhibitions,

B2B portals, web browsing are an effective tool to find buyers. EPC’s, Indian
Missions abroad, overseas chambers of commerce can also be helpful. Creating
multilingual Website with product catalogue, price, payment terms and other
related information would also help.

9) Sampling: Providing customized samples as per the demands of Foreign

buyers help in getting export orders. As per FTP 2015-2020, exports of bonafide
trade and technical samples of freely exportable items shall be allowed without
any limit.

10) Pricing/Costing: Product pricing is crucial in getting buyers’ attention and

promoting sales in view of international competition. The price should be
worked out taking into consideration all expenses from sampling to realization
of export proceeds on the basis of terms of sale i.e. Free on Board (FOB), Cost,
Insurance & Cost & Freight (C&F), etc. Goal of establishing export costing
should be to sell maximum quantity at competitive price with maximum profit
margin. Preparing an export costing sheet for every export product is
advisable.

11) Negotiation with Buyers: After determining the buyer’s interest in the
product, future prospects and continuity in business, demand for giving
reasonable allowance/discount in price may be considered.

12) Covering Risks through ECGC: International trade involves payment

risks due to buyer/ Country insolvency. These risks can be covered by an
appropriate Policy from Export Credit Guarantee Corporation Ltd (ECGC).
Where the buyer is placing order without making advance payment or opening
letter of Credit, it is advisable to procure credit limit on the foreign buyer from
ECGC to protect against risk of non-payment.

Processing an Export Order

i. Confirmation of order: On receiving an export order, it should be examined

carefully in respect of items, specification, payment conditions, packaging,
delivery schedule, etc. and then the order should be confirmed. Accordingly, the
exporter may enter into a formal contract with the overseas buyer.

ii. Procurement of Goods: After confirmation of the export order, immediate

steps may be taken for procurement/manufacture of the goods meant for export.
It should be remembered that the order has been obtained with much efforts and
competition so the procurement should also be strictly as per buyer’s
requirement.

iii. Quality Control: In today’s competitive era, it is important to be strict

quality conscious about the export goods. Some products like food and
agriculture, fishery, certain chemicals, etc. are subject to compulsory pre-
shipment inspection. Foreign buyers may also lay down their own
standards/specifications and insist upon inspection by their own nominated
agencies. Maintaining high quality is necessary to sustain in export business.

iv. Finance: Exporters are eligible to obtain pre-shipment and post-shipment

finance from Commercial Banks at concessional interest rates to complete the
export transaction. Normally Banks give 75% to 90% advances of the value of
the order keeping the balance as margin

v. Labeling, Packaging, Packing and Marking: The export goods should be

labeled, packaged and packed strictly as per the buyer’s specific
instructions. Good packing helps easy handling, maximum loading, reducing
shipping costs and to ensuring safety and standard of the cargo. Marking such
as address, package number, port and place of destination, weight, handling
instructions, etc. provides identification and information of cargo packed.

vi. Insurance: Marine insurance policy covers risks of loss or damage to the
goods during the goods are in transit. Generally in CIF contract the exporters
arrange the insurance whereas for C&F and FOB contract the buyers obtain
insurance policy.

vii. Delivery: It is important feature of export and the exporter must adhere the
delivery schedule. Planning should be there to let nothing stand in the way of
fast and efficient delivery.

x. Documentation

FTP 2015-2020 describe the following mandatory documents for import

and export.

 Bill of Lading/ Airway bill

 Commercial invoice cum packing list

 Shipping bill/ bill of export/ bill of entry (for imports)

(Other documents like certificate of origin, inspection certificate etc may
be required as per the case.)

xi. Submission of documents to Bank

After shipment, it is obligatory to present the documents to the Bank

within 21 days for onward dispatch to the foreign Bank for arranging
payment. Documents should be drawn under
Collection/Purchase/Negotiation under L/C as the case may be, along
with the following documents

- Bill of Exchange

- Letter of Credit (if shipment is under L/C)

- Invoice

- Packing List

- Airway Bill/Bill of Lading

- Declaration under Foreign Exchange

- Certificate of Origin/GSP

- Inspection Certificate, wherever necessary

- Any other document as required in the L/C or by the buyer or

statutorily.

xii. Realization of Export Proceeds

As per FTP 2015-2020, all export contracts and invoices shall be

denominated either in freely convertible currency of Indian rupees, but
export proceeds should be realized in freely convertible currency except
for export to Iran.

Export proceeds should be realized in 9 months.

 Agricultural Export Promotion Agencies
There are different export promotion agencies for different agricultural
commodities exported from the country such as
Export Promotion Councils
Export Promotion Authorities
Export Promotion Commodity Boards and other agencies.
List of Export Promotion Councils:
1. APEDA
2. MPEDA
3. Apparel Export Promotion Councils
4. Cashew Export Promotion Councils
5. Carpet Export Promotion Councils
6. Cotton textiles Export Promotion Councils
7. Gems and Jewelers Export Promotion Councils
8. Handloom Export Promotion Councils
9. The Indian Silk Export Promotion Councils
10. The sports goods Export Promotion Councils
Export Promotion Authorities:
1. NAFED- National Agricultural Cooperative Marketing Federation of India Ltd.
2. IFCI- Industrial Finance Corporation of India
3. FIEO- Federation of Indian Export Organization
4. FMC- Forward Market commission
5. NCTI- National Centre for Trade Information
6. NDDB-National Dairy Development Board
7. STC-State Trading corporation
8. SIDBI- Small Industries Development Bank of India
Commodity Boards and other agencies:
1. Tea Board
2. Tobacco Board
3. Rubber Board
4. Spices Board of India
5. National Horticulture Board (NHB)
6. Coffee Board
7. The Coir Board
8. Central Silk Board
9. Coconut Development Board
10. CBEC- Central Board of Excise and Customs
11. National Medicinal Plants Board
12. Handicrafts and Handlooms
13. Power loom Board

APEDA: Agricultural and Processed Food Products Export Development

Authority
With a view to increased export from agricultural sector the ‘Agricultural
and Processed Food Products Export Development Authority’ was established
by the GOI under the Agricultural and Processed Food Products Export
Development Authority Act passed by the Parliament in December, 1985. The
Act came into effect from 13-02-1986 by a notification issued in the Gazette of
India. The Authority replaced the Processed Food Export Promotion Council
(PFEPC).
Functions of APEDA:
1. Development of industries relating to the scheduled products for export by
way providing financial assistance
2. Registration of persons as exporters of the scheduled products on payment as
may prescribed.
3. Fixing of standards and specifications for the scheduled products for the
purpose of exports.
4. Improving of packaging of the scheduled products.
5. Improving of marketing of the scheduled products.
6. Promotion of export oriented production and development of the scheduled
products.
7. Training in various aspects of the industries connected with the scheduled
products
Products Monitored: APEDA is mandated with the responsibility of export
promotion and development of the following products
a. Fruits, vegetables and their products
b. Meat and meat products
c. Poultry and poultry products
d. Dairy products
e. Confectionery, biscuits and bakery products.
f. Honey, Jaggery and sugar products.
g. Alcoholic and Non-Alcoholic beverages
h. Cereals and its products
i. Pickles, Papads and Chutneys.
j. Herbal and Medicinal plants and
k. Basmati Rice.
Composition of APEDA Authority: As prescribed by the statute, the APEDA
authority consists of the following members namely. (42 members)
1. A chairman, appointed by the Central government
2. Agricultural Marketing Advisor (AMA) to the GOI, ex-officio
3. One member appointed by the Central govt. representing the Planning
Commission
4. Three members of parliament
5. Eight members appointed by the central govt. of different ministers
6. Five members appointed the central govt. state union territories
7. Seven members appointed by central govt. of diff councils, boards and
research institute and also federation.
8. Twelve members appointed by the central govt. of different industries
9. Two members appointed by the central govt. of diff. scientists in the field of
agriculture economics and marketing of the scheduled products.
Administrative set up of APEDA:
1. Chairman-Appointed by the central government.
2. Director-Appointed by APEDA
3. Secretary- Appointed by the central govt.
 4. Other Officers and Staff: More than 100 staff strength of different categories
of A,B,C,&D.
Head Office: New Delhi
Regional Offices: (5) Mumbai, Kolkata, Bangalore, Hyderabad and Guwahati.

Marine Products Export Development Authority (MPEDA)

The MPEDA replaced the Marine Products Export Promotion Councils
(MPEPC) and started functioning in September 1972. MPEDA is responsible
for development of the marine products industry w.r.t exports. The authority
(MPEDA) serves the seafood industry right from fishing to processing,
packaging, storing, transporting and marketing to the different markets all over
the world.
The authority is entrusted with the task of ensuring a healthy growth of
the industry through judicious regulation, conservation and control. Importers
and exporters can obtain any information relating to the markets and the
products from the MPEDA.
Functions of MPEDA:
1. Development of fishing in all its aspects and management of fisheries
2. Registration of fishing vessels processing plants, storage premises relating to
the marine products industry.
3. Laying down (fixing) standards and specifications for marine products for
purposes of exports.
4. Regulation of exports of marine products.
5. Arrange for training in different aspects connected with export with special
reference to fishing processing and marketing.
MPEDA’s services extended to foreign buyers right from packers to
exporters and ensuring that the products are delivered in the overseas markets
on time and in prime condition.
 To ensure prompt and effective services to the industry, MPEDA has
opened regional office in major seafood processing and export centers and a
trade promotion office at New Delhi. It has got a foreign office at Tokyo.
Major Export Markets: The major markets for export of marine products are
Japan, USA, European Union (EU), China, south East Asia, Middle East and
others.

Commodity Boards in India:

Commodity Board is registered agency designated by the Ministry of
Commerce, Government of India for purposes of export-promotion and has
offices in India and abroad. There are five statutory Commodity Boards, which
are responsible for production, development and export of tea, coffee, rubber,
spices and tobacco.
The Government of India has set up Commodity Board as a separate
organization to promote the export of commodities. Commodity Boards regard
themselves as a match to export promotion council. However, the following
differences may be observed between Commodity Boards and Export
Promotion Council.
1. Commodity Boards look after the export promotion of primary and traditional
items of export. While the export promotion council is responsible for the
promotion of non-traditional items like engineering goods, computers,
chemicals, etc.
2. Commodity Boards are statutory bodies, while export promotion councils are
registered bodies under the Indian Companies Act.
3. Apart from export promotion, Commodity Boards take up product
development. Export promotion councils are concerned mainly with the
promotion of exports of respective products.
Functions and objectives of Commodity Boards:
The functions and objectives of Commodity Boards are given below:
1. Advising the government on policy matters such as fixing quotas for exports,
entering into trade agreements with foreign countries, etc.
2. Undertaking promotional activities such as participation in exhibition and
trade fairs, opening of foreign offices abroad, conducting marketing surveys,
sponsoring trade delegations, etc.
3. Promoting the consumption of commodities in their jurisdiction by opening
branch offices in foreign countries.
4. Resolving all problems relating to commodities in their jurisdiction.
5. Undertaking research activities to develop production and marketing
activities within the country. Commodity Boards have research units of their
own.
6. Imparting training to workers engaged in the production of the commodity
concerned. The National Coir Training and Design Centre, Institutes of
Handloom Technology at Salem and at Varanasi are the training institutes
set up by their respective commodity Boards.
Kinds of Commodity Boards in India:
The Government of India has established several commodity Boards to guide
production and export of commodities in their jurisdiction:
1. Coffee Board
2. Tea Board
3. Cardamon Board
4. Rubber Board
5. Coir Board
6. Central Silk Board
7. The All India Handicrafts Board
8. The All India Handloom Board.
9. Coconut Development Board
10. Spices Board and Tobacco Boards are the important:
1. Coffee Board: The Coffee Board was established under the Coffee Act of
1942. It aims at the development of the industry and the promotion of its
exports. The Coffee Board has set up a Central Coffee Research Institutes and
also six coffee demonstration farms. The results of its research activities are
made available to coffee growers. The Board advertises its product in foreign
trade journal and mass circulation newspaper media. It also participates in trade
fairs and exhibitions to promote the export of the product.
Coffee Board
1-Dr. B.R. Ambedkar Veedhi,
Bangalore-560001
Tel: (91) 80-257890
Fax: (91) 80-2255557
2. Tea Board: The Tea Board was established by the Government of India
under the Tea Act of 1955. Development of the tea industry and the promotion
of its export are the main objectives of the Tea Board. The board has set up
offices in India as well as abroad. It works in collaboration with the Tea
councils set up in the U.K, the USA, Germany, France, Australia, New Zealand
and Canada with the cooperation of other tea producing countries. The Board
also arranges for pre-shipment inspection and quality control under the Tea
Control Order of 1959.
Tea Board
14, BTM Sarani, Brabourne Road,
P.B. No. 2172, Kolkata-700001
Tel: (91) 33-2251411
Fax: (91) 33-2251417
3. Cardamom Board: The Cardamom Board was constituted under the
Cardamom Act of 1965 by the Government of India. It is the statutory body
with its headquarters at Ernakulam. It has set up a foreign office at Brussels
which conducts exhibitions abroad and undertakes promotional campaigns.
4. Rubber Board: The Government of India established the Rubber Board
under the Rubber Act of 1947 as a statutory body. The Board advises the
government on all matters related to rubber industry. Further, it undertakes
control, planning, marketing and acquisition of rubber.
Rubber Board promotes the development of rubber industry in India. It is
responsible for the registration of estates, issue of new planting and replanting
licenses and other development schemes such as replanting subsidy. It has set
up a Rubber Research Institute with well equipped laboratories. Its publications
are very useful for the rubber industry.
Rubber Board
Sub-Jail Road, P.B. No. 1122,
Kottayam, Kerala-686002
Tel: (91) 481-2301231
Fax: (91) 481-2571380
5. Coir Board: The Coir Board was incorporated under the Coir Industry Act.
It aims at the development of the coir industries. It has a coir research institute
at Alleply and National coir Training and Design centre. The Coir Board
conducts research surveys. encourages formation of new industry. It undertakes
publicity in India and abroad through mass media and exhibitions.
Coir Board
"Coir House", M.G. Road,
Kochi 682 016
Tel:+91-484-2351807/2351788/2351954, Fax: +91-484-2370034/2354397
E-mail : [email protected], [email protected]
6. Central Silk Board: The central silk board was set up in 1949 under the
Central Silk Board Act. Its headquarters are located at Mumbai. It also runs the
central sericulture research stations at Berhampur, Kalimpong, Mysore and
Ranchi. The board performs the following functions:
Developing sericulture industry:
Implementing annual plans and attaining production and export targets.
Organizing research, training, seed production, and export promotion.
Import and export of raw silk fabrics.
7. The All India Handicrafts Board: The All India Handicraft Board has its
headquarters in Delhi. The running of four design centres at Mumbai, Kolkata,
Bangalore and New Delhi and one development centre at Bangalore. Assisting
the state government in planning and executing development schemes.
Development and evaluation of new designs which are commercially viable and
production of proto-type.
Export promotion measures like participation in trade fairs and
exhibitions, production of films, brochures, catalogues and other promotional
aids.
8. The All India Handloom Board: The All India Handloom Board promotes
the development of handlooms as cottage industry. Two institutes of Handloom
Technology are located at Salem and Varanasi. They also offer 3 year diploma
courses.
Seven weaver centres are located in Bombay, Indore, Varanasi, Calcutta,
Mangalari, Bangalore and Madras. These centres conduct research to evolve
attractive designs for domestic as well as foreign markets. They provide
technical assistance in printing, dyeing and weaving. They also provide
financial assistance and help the industry by organizing depots abroad. They
arrange pre-shipment quality control inspection.
9. Coconut Development Board (CDB):
CDB is a statutory body established under the Ministry of Agriculture of
the Government of India for the integrated development of coconut and
coconut-related products. Coconut Development Board is a statutory body
established by the Government of India for the integrated development of
coconut production and utilization in the country with focus on productivity
increase and product diversification. The Board which came into existence on
12 January 1981, functions under the administrative control of the Ministry of
Agriculture, Government of India, with its Headquarters at Kochi in Kerala and
Regional Offices at Bangalore in Karnataka, Chennai in Tamil Nadu and
Guwahati in Assam. There are six State Centres situated at Bhubaneswar in
Orissa, Calcutta in West Bengal, Patna in Bihar, Thane in Maharashtra,
Hyderabad in Andhra Pradesh and Port Blair in the Union Territory of
Andaman & Nicobar Islands.
Coconut Development Board
P.B. No.1021, Kera Bhavan,
Near SRV High School, Kochi– 682011
Office: 0484-2376265, 2377267, 2377266, 2376553
Fax: 91 484-2377902
10. Spices Board: The Spices Board is the Indian government regulatory and
promotion agency for Indian spices. The board is headquartered in Kochi. Dr.
Jayathilak, IAS is the current chairman of Spices Board. The board has a state-
of-the-art testing laboratory at its headquarters in Kochi. There are also regional
laboratories at Mumbai, Chennai, Delhi, Tuticorin and Guntur. Through the
laboratories, the Spices Board makes mandatory quality checks for spices
exported from India. The Spices Board has an outlet next to its headquarters in
Kochi. Spices are sold under the brand 'Flavourit'.
Spices Board
Sugandha Bhavan, P.B. No. 2277,
Palarivattom P.O., Cochin-682025
Tel: (91) 484-2333610 to 2333616 (7 Lines)
Fax: (91) 484-2334429, 2331429
Locating the foreign importers:

Finding foreign buyer is the major task for any export oriented business.
Every business must have concrete strategy to find foreign buyer. Strategy must
include online as well offline Promotions.
A Powerful strategy for” How to find Foreign Buyers / Overseas Buyer”
includes following activities:
1. Visible Online Presence: You must have mobile responsive, multi-
lingual and international website. Website must include product portfolio, your
certifications, testimonials, strength etc. Since website is your first impression
in front of visiting foreign buyer so invest actively.
2. Attend Trade Shows: Make your presence at various international
trade fairs. Build up relationship and do follow up communications to crack
export order.
3. Import- Export Trade Data Analysis: Use available import export
data base to find importers list and countries having demand for your country.
4. Social Media and Google Marketing: Use social media and google to
increase your business reach and visibility. Make your presence on major social
platforms like Linkedin , FB etc.
5. Export Promotion Council and Foreign Embassies: Stay connected
with your respective EPC as well as various foreign embassies to get importer
details. They help you to guide proper marketing in the trade. They also extend
their services in finding buyers for your product.
6. Foreign Agent: You can appoint an agent in your country who will
find buyer on your behalf.
Email Marketing: Effective communication using emails and phone can
help you to convert lead into export order.
These are the various activities to find foreign buyer. You can hire a
export marketing agency who will do this activities on your behalf.
How to Find Foreign Buyers Online for your Export Product
1. Contact government-owned foreign agencies-: In many countries, there are
government-sponsored or government-controlled companies or agencies that
usually import various commodities needed by local consumers—in bulk. These
are sometimes called trading companies.
To connect with these foreign agencies, you need to conduct research to
identify which countries your export would be great for. Then contact those
countries’ embassies in your country. Better yet, you can contact the companies
or agencies directly in their own country.
2. Connect with buying agents-: Some foreign agencies are proactive and
already have buying agents in countries that have abundant supplies of products
needed in their home countries. If you have such foreign agencies in your
country that are looking to buy your type of export products, then get in touch
with them.
Again, your local embassy is a great place to look for these specific
buying agents. However, the Internet is another powerful tool. Visit the official
website of the country’s import-export agency, or simply search for local
representatives. Be sure to communicate or deal with an official or officially
accredited representative of the agency.
3. Contact foreign wholesalers-: There are wholesalers in virtually all
countries. So, you can sell your export products to privately owned wholesale
companies instead of government agencies. Dealing with private firms instead
of government agencies is usually much quicker—and allowing them deal with
the intricacies of importing is a big benefit, too.
4. Connect with commission agents-: Just as government-owned foreign
agencies have their own local agents in your country; foreign privately-owned
wholesale firms do, too. These agents are middlemen finding great export
opportunities on behalf of the foreign wholesaler. They are easier to deal with
and you can communicate easily with foreign distributors through them.
5. Hire your own sales person-: You will wear yourself out if you try to do all
the work yourself. Just like foreign wholesalers have agents to find imports on
their behalf, you can commission a sales representative to help you find
individuals and firms that are looking to buy your export products.
Though you will have to pay the sales representative a fixed salary or
percentage commissions, you will be able to focus your time and energy on
manufacturing your product, searching for other markets, and other vital aspects
of your export business.
6. Attract buyers-: While you will most likely have to proactively look for
buyers, it’s possible to attract buyers, too–because they are also looking for you
just as you are looking for them. And there are many strategies you can adopt to
attract buyers to your export business. These include advertising in foreign
magazines and newspapers published in your target countries as well as
sponsoring trade shows in those countries.
Don’t forget online marketing, too. Set up a small website that provides
information about your company and export products. And implement online
marketing strategies such as pay-per-click ads, search engine optimization, and
so on.

Bank guarantee:
A bank guarantee is a written contract given by a bank on the behalf of a
customer. By issuing this guarantee, a bank takes responsibility for payment of
a sum of money in case, if it is not paid by the customer on whose behalf the
guarantee has been issued. In return, a bank gets some commission for issuing
the guarantee.
In the situations, where a customer fails to pay the money, the bank must
pay the amount within three working days. This payment can also be refused by
the bank, if the claim is found to be unlawful/lies (without enclosing a proper
export documents like PAN no, license card, account no. etc)
Benefits of Bank Guarantee:
For Government/Public Sector:
1. Provides access to capital markets as well as commercial banks.
2. Reduces cost of private financing to affordable levels.
3. Facilitates privatizations and public private partnership.
4. Reduces government risk exposure by passing commercial risk to the private
sector For Private Sector:
1. Reduces risk of private transactions in emerging countries.
2. Opens new markets
3. Improves project sustainability
Types of Bank Guarantee:
1. Direct Bank Guarantee: It is issued by the applicant’s bank (issuing bank)
directly to the guarantee beneficiary without concerning a correspondent bank.
It is less expensive.
2. Indirect Bank Guarantee: Here second bank is involved which is basically a
representative of the issuing bank in the country to which beneficiary belongs. It
involves more time consuming and more expensive.
3. Confirmed Guarantee
4. Advance Payment Guarantee
5. Payment Guarantee
6. Loan Repayment Guarantee
7. Credit Card Guarantee etc.
How to apply for Bank Guarantee:
Procedure is very simple and is not governed by any particular legal
regulations. To obtain the bank guarantee one needs to have a current account in
the bank. Guarantees can be issued by a bank through its authorized dealers as
per notifications mentioned in the FEMA 8/2000 date 3rd May 2000.
FEMA-Foreign Exchange Management Act
FERA- Foreign Exchange Regulation Act
Insurance Certificate/Bank Insurance:
It is also known as insurance policy, it certifies that goods transported
have been insured under an open insurance policy and is not actionable with
little details about the risk covered.
Requirements for completion of an Insurance policy are as follows:
1. The name of the party in the favour which the document have been issued.
2. The name of the vessels or flight details.
3. Insurance value that specified in the credit.
4. The description of goods which must be consistent with that in the credit and
on the invoice
5. The name and address of the claims setting agent together with the place
where claims are payable.
Export Credit Insurance: It protects you from the consequences of the
payment risks both political and commercial. It enables you to expand your
overseas business without fear of loss. Further, it creates a favourable climate
for you under which you can hope to get timely and liberal credit facilities from
the bank at home.
We can obtain export credit insurance from the export credit and
guarantee corporation (ECGC) of India ltd.
Bill of Exchange/Foreign Draft: It is commonly known as draft. When a draft
is drawn on a foreign bank, it is known as foreign draft or bill of exchange. A
bill of exchange means of collecting payment from the foreign buyer through
the banking channel.
Bill of exchange defined as “It is an instrument in writing, containing an
order, signed by the maker. Directing a certain person to pay a certain sum of
money only to the order of a person to the bearer of the instrument.”
Bill of Ladding: Bill of lading (B/L) is a document issued by the shipping
company or its agent. It acknowledges the receipt of the goods mentioned in the
bill for shipment on the board of vessel and its functions are
1. It is a document of title to the goods shipped
2. It is a receipt for goods.
3. It is evidence of export contract.
Shipping Bill: The shipping bill is a document required to seek the permission
of customs to export goods by sea/air. It contains a description of export goods,
number and kind of packages, value of goods, name of vessel, country of
destination etc.
Invoice: It is a fundamental and basic document. It contains the name of the
exporter, importer, consignee and description of goods. It is required to be
signed by an exporter or his agent. The invoice prepared by exporter is required
to be presented before different authorities for different purposes.

Letters of Credit (LC): Popularly known as L/C, is by the most important

single document in international trade. It forms the basis of a very large volume
of world trade.
An international trade is a trade between two different countries, two
different markets, two different economies and most important two different
currencies. So there exist a lot of complications in setting trade payments.
In order to solve these problems, we have four options, such as
1. Payment by documentary Credit/LC.
2. Cash in advance/Clear Advance
3. Documentary Collection.
4. Open account Payment/differed payment
Of these payments by documentary credit or LC is one widely used all
over the world.
Meaning: Documentary credits popularly known as LC and are considered as
an integral part of international trade. Letters of Credit is an instrument of
setting trade payments/transactions of goods and services.
Definition: Letter of Credit is the “banks conditional Undertaking of Payment.”
from this simple five word definition, we can derive five important
characteristics of LC, namely,
1. It is an undertaking of a bank
2. It is an undertaking to make payment
3. It is an undertaking given on behalf of a person.
4. It is an undertaking to a third person
5. it is a conditional undertaking, Payment being subject to compliance with
certain conditions.
Importance of LC:
LC can be characterized as an “arrangement of making payment against
documents.” It is an arrangement whereby a bank, acting at the request of
customer, undertakes to pay a third party by a given date according to agreed
stipulations as against presentation of documents.
We must view LC from various angles i.e from the angle of bankers and
commercial parties.
From Bankers point of view--- it can be merely characterized as an instrument
for making payment against documents.
From Commercial Parties—it serves as important economic purpose.
There are different parties to LC such as
1. Applicant
2. Issuing bank
3. Beneficiary bank
4. Advising bank
5. Confirming bank
6. Nominate bank
7. Reimbursing bank
What is a 'Letter of Credit'
A letter of credit is a letter from a bank guaranteeing that a buyer's
payment to a seller will be received on time and for the correct amount. In the
event that the buyer is unable to make payment on the purchase, the bank will
be required to cover the full or remaining amount of the purchase. Due to the
nature of international dealings, including factors such as distance, differing
laws in each country, and difficulty in knowing each party personally, the use of
letters of credit has become a very important aspect of international trade.
Because a letter of credit is typically a negotiable instrument, the issuing
bank pays the beneficiary or any bank nominated by the beneficiary. If a letter
of credit is transferrable, the beneficiary may assign another entity, such as a
corporate parent or a third party, the right to draw.
Types of Letters of Credit:
Letter Of Credit Confirmed Letter Of Credit Transferable Letter Of
Credit Straight Credit Red Clause Letter Of Credit Sight Letter Of Credit
Bank Confirmation Letter - BCL Interpretive Letter Shareholder Letter
Synthetic Letter Of Credit.
1. Confirmed Letter Of Credit
A confirmed letter of credit is a second guarantee, in addition to a letter
of credit, that commits to payment of the letter of credit. A confirmed letter of
credit is typically used when the issuing bank of the letter of credit may have
questionable creditworthiness and the seller seeks to get a second guarantee to
assure payment.
2. Transferable Letter Of Credit
A transferable letter of credit is a letter of credit that permits the
beneficiary of the letter to make some or all of the credit available to another
party, thereby creating a secondary beneficiary. The party that initially accepts
the transferable letter of credit from the bank is referred to as the first
beneficiary. The bank issuing the letter of credit must approve the transfer.
 3. Red Clause Letter Of Credit
The red clause letter of credit is a specific type of letter of credit in
which a buyer extends an unsecured loan to a seller. Red Clause Letters of
Credit permit documentary credit beneficiaries to receive funds for any
merchandise outlined in the letter of credit. These letters are commonly used by
beneficiaries who act as purchasing agents for buyers in another country.
A sight letter of credit is payable once it is presented along with the
necessary documents. An organization offering a sight letter of credit commits
itself to paying the agreed amount of funds provided the provisions of the letter
of credit are met.
For example, a business owner may present a bill of exchange to a lender
along with a sight letter of credit and walk away with the necessary funds right
then. A sight letter of credit is thus more on-demand than some other types of
letters of credit.

4. Bank Confirmation Letter - BCL

A bank confirmation letter (BCL) is a letter from a bank or another
financial institution confirming the existence of a loan or a line of credit that has
been extended to a borrower. The letter officially vouches for the fact that the
borrower – whether an individual, company or organization – is eligible to
borrow a specified amount of funds for a specified purpose.
Documentation Requirements:
In order to receive payment, the beneficiary must present documentation
of completion of their part in the transaction to the issuing bank. The documents
that the issuing bank will accept are specified in the letter of credit, but may
often include:
1. Bills of exchange
2. Invoices
3. Government documents such as licenses, certificates of origin,
 inspection certificates, embassy legalizations, and phytosanitary certificates
4. Shipping and transport documents such as bills of lading and airway bills
5. Insurance policies or certificates, except cover notes
Risks in Letter of Credit Transactions:
Letter of credit transactions are not without risks. The risks inherent in
these types of transactions include:
1. Fraud risk, in which the payment is obtained through the use of falsified or
forged documents for worthless or nonexistent merchandise
2. Regulatory risk, in which government action may prevent completion of
the transaction
3. Legal risk, in which legal action prevents completion of the transaction
4. Force majeure risk, in which completion of the transaction is prevented by
an external force, such as war or natural disaster
5. Failure of the issuing or collecting bank