Réception of Documentary Credits in Nigeria
Documentary Credit is a common planétaire payment method adopted by Nigerian companies to settle planétaire trade travaux. Many planétaire exporters accept chroniques issued by Nigerian banks. These exporters are risking dialectal banks while others require garantie from other ‘planétaire banks’ based in vertueux, North America among others for dialectal documentary credits.
Nigerian banks comply with the provende of the Universel Chamber of Succursale Rules for Documentary Credit (ICC Livraison No. 600, 2007 Edition). It defines as a credit: ‘Any conciliation, however named or described, which is irrevocable and thereby constitutes a specific undertaking by the issuing bank to honor a compliant representation’.
In other words, this fait can be seen as a promise by a bank to pay a specified amount to the seller of goods/charges on behalf of its customer if the seller presents the chroniques called for under the credit and fulfills intelligible other hasard. There within the stipulated time.
Many dialectal importers prefer this conciliation bicause:
They are able to get bank funds using these équipement
They are assured that their bank will not pay the seller unless all the terms of the credit are complied with.The buyer can control the quality and quantity of goods by calling for intelligible chroniques under the credit.
The commercer can get a loan from the vendre bicause the vendre will bear the risk of the issuing bank instead of the commercer
Its transactions are eligible for the official foreign exchange market which is a cheap commencement of foreign exchange
Documentary credit works:
The buyer and seller execute a sales contract and the seller issues a proforma invoice
Buyer fills a Form M using proforma invoice and other chroniques
The buyer applies to the bank to péroraison the fait
It is issued on behalf of the postuler and advised to a foreign bank (issuing bank’s correspondent bank) using cash or line of credit.
The correspondent bank advises the seller either directly or through the seller’s bank
The seller accepts the credit and then ships the goods to the diplomatie specified in the credit
Requérir presents specified chroniques on credit to nominated bank for payment
The nominated bank checks the chroniques and if found in order forwards them to the issuing bank
The designated bank concitoyen the seller in cash or using a line of credit
Issuing bank uses copy of shipping fait to apply for Pre-Arrival Assessment Transfert (PAAR).
Issuing bank releases fait to buyer along with PAAR
The buyer concitoyen the importation duty to the bank that has opened the LC and often clears the goods from the remise using a troc représentant.
On or before 90 days of taking delivery from the remise, the buyer sends the exchange control fait to the issuing bank (45 days for petroleum products).
Documentary Credit Process Flow
Any request for a documentary credit conversation in Nigeria must comply with dialectal exchange control regulations supporting such request with the superposable listed chroniques:
E-Form M (Mandatory)
Proforma Invoice (Mandatory)
Pièce Insurance Certificate (Mandatory)
Current Pharmaceutical License (Pharmaceutical Products)
Current Pharmaceutical License (Pharmaceutical Products) for registration / société of premises
Current Habitant Agency for Food, Drugs Gouverne and Control (NAFDAC) permit (chemical, food, beverage, etc.)
Current NAFDAC Clearance Permit (Drugs Only)
Current Habitant Electricity Regulatory Authority ratification (generator only)
Current Department of Petroleum Resources (DPR) Permit (Petroleum Products)
Current Department of Petroleum Resources (DPR) certificate
For storage facilities / chariot farms (petroleum products)
Normes Organization of Nigeria approved
Assessment Program (SONCAP) Product Certificat (Various
household and industrial goods).
Banks usually ask documentary credit applicants to fill out an méditation form that serves as a contract for the conversation between the buyer and the issuing bank.
The specific hasard of this méditation differ from bank to bank.
Préliminaire of foreign exchange for documentary credits
Documentary credit is eligible for official foreign exchange window-weekly interventions by the axial bank as well as interbank funds.
However importers can use their resident account compte for their documentary credit transactions.
Axial bank interventions are only available in US dollars and take emploi on Mondays and Wednesdays of each week
Importers with invoices in third currencies (euro, pound, yen, etc.) will use dollars from the axial bank to purchase these third currencies from the crediting bank.
Where the commercer is financing the documentary credit alone, the issuing bank shall provide the commercer with the dialectal currency equivalent of the proforma invoice value before the credit is established.
Foreign currency will be sent to the confirming bank to cover the credit cash as the issuing bank is not allowed to hold funds
Funds purchased from the Axial Bank must be used to establish or repay documentary credit within three days from the moment of receipt of funds.
Unapplied funds must be repatriated to enable axial bank repurchase and return dialectal currency to the commercer.
Foreign exchange from the axial bank is cheaper than in the interbank market.
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