Most letters of credit used in international trade are issued subject to the ICC’s Uniform Customs and Practice for Documentary Credits, known as UCP 600, which came into force in July 2007. A few core principles go a long way towards getting paid on time.
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1. The credit is independent of the sale contract
Banks deal with documents, not with goods or services. A dispute over the quality of goods under the underlying contract does not, by itself, entitle a bank to refuse payment against complying documents.
2. Compliance is judged on the face of the documents
Banks examine whether documents appear on their face to comply with the terms of the credit, the applicable UCP articles and international standard banking practice. Data need not be identical across documents, but it must not conflict.
3. Examination time is limited
A nominated, confirming or issuing bank has a maximum of five banking days following the day of presentation to determine whether the presentation complies.
4. A refusal must be made properly
A bank that decides to refuse must give a single notice stating each discrepancy. A bank that fails to follow the refusal procedure may be precluded from claiming that the documents do not comply.
5. Read the credit before you ship
Many discrepancies arise from terms that the beneficiary could have asked to amend at the outset. Reviewing the credit against what you can actually produce is the cheapest risk control available.
- Check names, addresses and the description of goods against your invoice.
- Confirm you can meet the latest shipment date and presentation period.
- Identify documents you cannot obtain and seek an amendment early.
- Keep data consistent across invoice, transport and insurance documents.
This note is for general information only and does not constitute legal advice. For advice on a specific matter, please contact us.
