- An Exporter Mr. Kumar from India got a confirmed order of Dry Red Chilli for a 40 ft container from Buyer B from Dubai.
- Buyer B had paid an advance of 25 % of the amount and had an agreement for payment through DP * ( Documents against Payment) . The offer was so promising that Exporter got credit from Supplier S and made the shipment at the earliest believing that the payment for the container will be delivered at the right time.
- But to the shock and surprise of the Exporter Mr. Kumar Buyer B wasn’t ready to make the payment and was pressuring the Exporter to convert the Payment Mode from DP to * DA ( Documents against Acceptance).
- The Exporter Mr. Kumar was not able to convince Buyer B to release the payment and at the same time had to pay the demurrage charges for holding the container at the port of Jebel Ali, Dubai.
- The Exporter Mr. Kumar has safeguarded his shipment with ECGC* and as per the policy of ECGC if the Exporter converts the payment mode from DP to DA the shipment will get only 50 % Insurance coverage rather than the assured 100 % if the payment is done by DP ( Documents against Payment ).
- Even though Buyer B failed to release the amount on time the Exporter Mr. Kumar had a sigh of relief as he did not incur losses as his shipment was insured under ECGC.
- *DP- Documents against Payment is a payment mode where the Exporter instructs the presenting bank to release documents and shipping to the Buyer ( Importer ) only if the Importer pays the accompanying bill of exchange or draft
- *DA – Documents against Acceptance; In this case, the documents required for possession of the goods are released by the clearing bank only after the buyer accepts a time period drawn upon him. In short, it means giving credit to the Buyer for a required period of time
- *ECGC – Export Credit Guarantee Corporation Of India is a company wholly owned by Govt. Of India which provides export credit Insurance support to the Exporters
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