DOCUMENTARY

CREDIT
Group 3

Teuku Muhammad Rizq Ramadhansyah (2203101010134)

Sindy Alifa Saputri (2203101010114)
Putri Sandra Atqia (2203101010022)
Muhammad Jihad Alfarizi (2203101010371)
Muhammad Dzaky Raihan (2203101010179)
Ery Rivan Saputra (2203101010160)
Putri Adila (2203101010040)
Rifda Arifa Luthfia (2103101010278)
INTRODUCTION OF L/C
DEFINITION
A Documentary Credit (D/C) also known as Letter of Credit “L/C) is
a method of payment where the buyer’s bank guarantees payment
to the seller with the condition that the seller has to fulfil the terms
specified in the L/C.

FUNCTION
The Documentary Credit is used when :
the transaction amounts are very high
to facilitate the payment process in trade transactions. It
guarantees that the exporter will receive the agreed payment
from the importer.
It also helps the importer decide on the timing of the payment.
L/C serves as a form of security in international trade, which
often involves complex procedures and various risks.
 PARTIES INVOLVED

IMPORTER EXPORTER ISSUING BANK ADVISING BANK

is the party that initiates the Letter is the party that receives the Letter is the bank that receives the Letter of
is the bank of the importer and the
of Credit. This is usually the buyer of Credit as a guarantee of Credit from the issuing bank and
one that issues the Letter of Credit
in an international trade payment. Upon receiving the L/C, forwards it to the exporter. Its main
at the importer's request. The
transaction. The importer requests the exporter is required to ship the role is to authenticate the L/C and
issuing bank guarantees payment
their bank (the issuing bank) to goods as agreed in the contract ensure that it is genuine and has not
to the exporter as long as the
open a Letter of Credit in favor of and provide the necessary been tampered with. The advising
documents presented are in full
the exporter. The importer is document to the bank for bank does not take on payment risk
compliance with the terms
ultimately responsible for making verification. If the documents unless it also acts as a confirming
specified in the L/C.
the payment to the issuing bank comply with the terms of the L/C, bank. It assists the exporter in
once the bank has honored the the exporter will receive payment understanding the terms of the L/C
L/C. depends on the type of L/C and in forwarding the necessary
documents back to the issuing bank.
 LEGAL BASIS AND REGULATION OF L/C
ROLE OF THE ICC
UNIFORM CUSTOMS AND
Issuing UCP
PRACTICE FOR DOCUMENTARY
Providing ISBP (International Standard Banking Practice) >
CREDITS (UCP 600)
Provide standardize rules for guidance on how to examine documents under an L/C
L/C globally ICC’s Banking Commission > rule making body for banks
Consist of 39 Articles worldwide, focus on the financing of international trade
concerning the regulation of
international trades
UCP 600 becomes binding on REGULATION IN INDONESIA
all parties involved in the L/C, Law No. 10 of 1998 on Banking > does not directly regulate
unless the L/C explicitly states L/C, the law regulate general banking activities (including
that it does not refer to UCP foreign exchange and trade financing which L/C falls upon})
600 Regulation of the Minister of Trade Permendag) No. 94 of
2018 > revoked by Permendag No. 33 of 2023
 TYPE OF LC

Revocable vs. Confirmed vs. Sight L/C vs. Transferable and

Irrevocable L/C Unconfirmed L/C Usance L/C Back-to-Back L/C
Transferable L/C, This
Revocable L/C, This type of
Confirmed L/C, In this case, Sight L/C, Payment is made allows the original
L/C can be amended or
a second bank (usually in immediately upon beneficiary (the seller) to
canceled by the buyer
the seller's country) adds its presentation of the required transfer part or all of the
(applicant) or the issuing
confirmation to the L/C documents by the seller. credit to another party (the
bank at any time without
issued by the buyer's bank. second beneficiary).
prior notice to the seller
Usance L/C Also known as a
(beneficiary).
Unconfirmed L/C, This type time L/C, this type allows for Back-to-Back L/C, This
does not have the payment to be made at a involves two separate L/Cs.
Irrevocable L/C This type
confirmation of a second later date, typically after a The first L/C is issued in
cannot be changed or
bank specified period (e.g., 30, 60, favor of the seller by the
canceled without the
or 90 days) following the buyer's bank, and the
agreement of all parties
presentation of the required second L/C is issued by the
involved (the buyer, seller,
documents. seller's bank in favor of the
and the issuing bank).
seller's supplier.
L/C PROCEDURES AND
MECHANISMS

L/C Documents
Shipping Bill of Lading
Airway Bill
Commercial Invoice
Insurance Certificate
Certificate of Origin
Packing List
 RISK & MITIGTION IN
DOCUMENTARY CREDIT
Buyer Seller Bank
fails to meet the
Non-delivery requirement of
Bankrupt LC Document Validity
Exchange rate Late Payment of buyer failed to pay
fluctuations the bank Unpredictable Condition
Exchange rate
fluctuations
-Research Seller and -Research buyer -Research buyer, Seller, and Correspondence bank
bank credibility credibility credibility
-Conduct strict document -Pay attention to the -Conduct strict document checks
checks provisions of the L/C -knowing impact of any LC type

Source: Agus Setiawan, 'Risiko yang Dihadapi Bank dalam Transaksi Pembayaran dengan Letter of Credit (L/C)' (2025) Jurnal Ilmu Hukum Universitas
Syiah Kuala https://jim.usk.ac.id/perdata/article/download/8586/3577
THE ROLE OF BANK IN
DOCUMENT OF CREDIT
Banks are essential intermediaries in Letter of Credit (L/C) transactions,
ensuring that international trade occurs securely and with mutual trust
between buyer and seller. Each bank involved has a specific function that
contributes to the smooth execution of the L/C.

Issuing Bank
Acts on behalf of the buyer (applicant) to open the Letter of Credit.
Guarantees payment to the seller, provided that all terms and
conditions of the L/C are met.
Is responsible for the financial commitment of the transaction.
Advising Bank
Usually located in the seller's (beneficiary’s) country.
Verifies the authenticity of the L/C issued.
Advises and forwards the L/C to the seller but does not carry
payment obligation.
CONFIRMING AND
NEGOTIATING BANK
In some cases, especially when dealing with unfamiliar or high-risk regions,
additional banks may be involved to offer further protection for the seller.

Confirming Bank
Adds its own guarantee to the L/C in addition to that of the issuing bank.
Ensures the seller will be paid even if the issuing bank defaults.
Used when the seller lacks confidence in the issuing bank’s reliability or
country stability.

Negotiating Bank
Handles the checking and forwarding of shipping documents.
May provide early payment to the seller (discounting) before receiving
funds from the issuing bank.
Often the same as the advising bank.
BANK GUARANTEES IN L/C
The guarantees offered by banks in a Letter of Credit are
document-based, not goods-based. This means banks do not
ensure the quality or delivery of goods, but instead promise to
pay as long as the required documents are submitted in
accordance with the L/C terms.
Main Guarantees Include:
Issuing Bank’s obligation to pay the seller upon compliant
documents.
Confirming Bank’s additional assurance, if involved.
The overall structure provides trust and reduces the risk in
cross-border trade.
LETTER EXAMPLE
 ADVANTAGES AND DISADVANTAGES OF
DOCUMENTARY CREDIT

BENEFITS FOR EXPORTERS AND IMPORTERS COSTS AND PROCEDURAL COMPLEXITY

Ensures payment security for exporters Involves banking fees and

Provides assurance of shipment for administrative costs
importers Requires strict compliance with
Reduces risk of non-payment or non- documentation
delivery Time-consuming process
THANK
YOU