Documentary Credits in Practice


Book
420 Pages
April 2022
Institute of International Banking Law & Practice
ID: 5780905

This eBook addresses from all angles the finer points of sound use of these payment instruments in foreign trade.

Meticulously written in light of current international standard banking practice and based on the UCP rules, Documentary Credits in Practice by Pavel Andrle (420 pages) endeavours to equip documentary credit users with a practical guide to support their daily work dealing with documentary credits. This most comprehensive and highly practical book on the subject consists of four main parts.

This book endeavors to equip the reader - the user of the documentary credit - with a practical guide which will support day-to-day work dealing with documentary credits. A comprehensive approach to documentary credit practice, this book consists of four main parts (General, Practical, Financing of Documentary Credits and Examination of Documents).

What's Inside

An opening general section of the book elaborately introduces the documentary credit, its character, and its role in the payment and financing of international trade. The documentary credit is compared with other payment methods from the standpoint of its advantages and disadvantages, both from the seller’s and the buyer’s point of view. The DC is explained in a most practical way, differentiating this publication from others in the field. The DC instrument is explained “step by step”, i.e. each aspect of the credit is treated separately, from top to bottom of the credit instrument. UCP 600 rules are herewith clarified with comprehensive attention placed on various options and situations, linked directly to specific documentary credit terms and conditions.

A practical section follows which describes the documentary credit cycle in detail: from the preliminary stages of contracting through negotiation of the contract terms and conditions; final contract conclusion; issuance of the documentary credit; preparation of the documents required by the credit; to the presentation and drawing. Liabilities and responsibilities of the involved parties are explained as well as the optimal operational procedures, identification of common problems and issues, and the safeguards for dealing with them in daily practice.

As documentary credit is not only a payment instrument but can also serve as a financing tool, a third section of the book examines the various forms of financing based on documentary credits.

The book’s fourth section thoroughly addresses all facets of the examination of documents presented under documentary credits.

Who this is for:

Unique in both its scope and practicality, Documentary Credits in Practice is specifically designed for exporters, importers, and bankers, as well as carriers, freight forwarders, cargo insurers, and other practitioners actively engaged in international trade.

I. GENERAL PART: INTRODUCTION TO THE DOCUMENTARY CREDIT

1. PAYMENT METHOD - PAYMENT THROUGH A DOCUMENTARY CREDIT

1.1 Payment methods in foreign trade
1.1.1 Payment in advance
1.1.2 Payment after delivery of the goods (trading on open account basis)
1.1.3 Documentary Payments

2. DOCUMENTARY CREDIT - MAIN FEATURES

2.1 What is the Documentary Credit?
2.2 Main Categories of Documentary Credits
2.3 Confirmed or Unconfirmed Documentary Credit
2.3.1 Unconfirmed Documentary Credit
2.3.2 Confirmed Documentary Credit
2.4 Parties of a Documentary Credit Transaction
2.5 Documentary Credit Cycle
2.6 Special Types of Documentary Credits
2.6.1 Revolving Documentary Credit
2.6.2 Transferable Documentary Credit
2.6.3 Back to Back Documentary Credit
2.6.4 Standby Letter of Credit

3. RELATIONSHIPS AMONG PARTIES INVOLVED IN DOCUMENTARY CREDIT TRANSACTIONS

3.1 Relationship between Exporter and Importer - Contract of Sale
3.2 Relationship between Importer and Issuing Bank
3.3 Relationship between Issuing Bank and Advising Bank
3.4 Relationship between Issuing Bank and Exporter
3.5 Relationship between Confirming Bank and Exporter
3.6 Other Relationships Related to Credits
3.6.1 Relationship between Advising Bank or Confirming Bank and Importer
3.6.2 Relationship between Advising Bank and Exporter
3.6.3 Relationship between Issuing Bank and Reimbursing Bank
3.6.4 Relationship between Nominated (Confirming) Bank and Reimbursing bank

4. MAIN PRINCIPLES (PILLARS) OF THE DOCUMENTARY CREDIT

4.1 Principle of Irrevocability (Irrevocable Documentary Credit)
4.2 Principle of Independence from Contracts and other Relationships
4.3 Documentary Nature of the Documentary Credit
4.4 Principle of Exclusion of Liability or Responsibility of Banks for Certain Risks

5. TERMS AND CONDITIONS OF THE DOCUMENTARY CREDIT - MAIN ASPECTS

5.1 Documentary Credit issued in the Form of SWIFT Message
5.2 Documentary Credit issued by Telex
5.3 Documentary Credit issued in the Form of the Letter

6. AVAILABILITY OF DOCUMENTARY CREDITS

6.1 The Methods of Availability of Credits and Options of Banks Involved in the Credit Transaction
6.1.1 Credit available by payment at sight
6.1.2 Credit available by deferred payment
6.1.3 Credit available by acceptance
6.1.4 Credit available by negotiation

II. PRACTICAL PART - GUIDE TO DOCUMENTARY CREDIT PROCEDURES

7. PREPARATIONS BEFORE THE CONTRACT

7.1 What is the Importer to do before he Signs/Concludes the Relevant Contract?
7.2 What is the Exporter to do before he Signs/Concludes the Relevant Contract?
7.3 Contract (of Sale or other Type) between the Exporter and the Importer
7.4 Documentary Credit as a Method of Payment for the Goods

8. CONTRACT OF SALE

8.1 Contents of Contract of Sale
8.2 Documentary Credit - Payment Condition in the Contract of Sale
8.3 Incoterms

9. IMPORT DOCUMENTARY CREDIT - OPERATIONS

9.1 Issuance of the Documentary Credit
9.1.1 The Issuing bank’s obligations
9.2 Procedure of the Documentary Credit Issuance
9.2.1 The Application to Issue a Documentary Credit - Preliminary considerations
9.2.2 The Application to Issue a Documentary Credit - Completion of the Form
Annex A - Application to Issue a Documentary Credit

10. EXPORT DOCUMENTARY CREDIT - OPERATIONS

10.1 Advising of Documentary Credit to the Beneficiary
10.2 Responsibilities of the Advising Bank
10.2.1 Responsibilities of the Advising Bank in case when it is instructed to confirm the Credit (or the amendment thereto)
10.2.2 Pre-Advice of a Documentary Credit (or Amendment)
10.2.3 Operative v. Non-Operative Credit (Amendment)
Annex B - Guidance for SWIFT Message MT 700 - Issuance of the Credit (excerpt)
Annex C - Advice of Export Documentary Credit to the Beneficiary - Example of a Bank Form
Annex D - Guidance for the Beneficiary for Check Up of the Advice of the Credit

11. AMENDMENT OF THE DOCUMENTARY CREDIT

11.1 SWIFT Form of the Amendment
11.2 Amendment to the Credit - Practical Procedure
11.2.1 Responsibility of the Advising Bank when Advising Amendments
11.2.2 Amendment of the Confirmed Credit

12. ISSUANCE OF DOCUMENTS REQUESTED BY CREDITS

13. PRESENTATION OF DOCUMENTS

Annex E - Export Documentary Credit
Annex F - Sample of Covering Letter Accompanying Documents for Presentation

14. DISCREPANCIES IN DOCUMENTS - OPTIONS FOR SOLUTIONS

14.1 Discrepancies which can be corrected
14.2 Discrepancies which cannot be (practically) corrected
14.2.1 Possible Solutions - Advising Bank Acting as Confirming Bank or Nominated Bank
14.2.2 Possible Solutions - Advising Bank Acting as “Only Advising Bank”
14.2.3 Possible Solutions - Issuing Bank

15. DRAWINGS UNDER CREDITS

15.1 Drawings under a Credit Available by Payment at Sight
15.1.1 Only Advising Bank
15.1.2 Nominated Bank
15.1.3 Confirming Bank
15.1.4 Issuing Bank
15.2 Drawings under a Credit available by Deferred Payment
15.2.1 Only Advising Bank
15.2.2 Nominated Bank
15.2.3 Confirming Bank
15.2.4 Issuing Bank
15.3 Drawings under a Credit available by Acceptance of a Draft
15.3.1 Only Advising Bank
15.3.2 Nominated Bank
15.3.3 Confirming Bank
15.3.4 Issuing Bank
15.4 Drawings under a Credit available by Negotiation
15.4.1 Only Advising Bank
15.4.2 Nominated Bank
15.4.3 Confirming Bank
15.4.4 Issuing Bank

Annex G - Processing of Documentary Credit Transaction (schematic overview)

III. FINANCING UNDER DOCUMENTARY CREDITS

16. FINANCING UNDER IMPORT AND EXPORT DOCUMENTARY CREDITS

16.1 Import Financing using Documentary Credit
16.1.1 Import Financing using Import Documentary Credit available by Deferred Payment
16.1.2 Import Financing using Loans provided by the Issuing Bank (Importer’s Bank)
16.1.3 Import Financing: Post-financing, Usance Credit payable at Sight
16.2 Pre-Export and Export Financing using Documentary Credit
16.2.1 Pre-Export Financing (Pre-Shipment Finance)
16.2.2 Export Financing (Post-Shipment Finance)

IV. EXAMINATION OF DOCUMENTS

17. EXAMINATION OF DOCUMENTS UNDER DOCUMENTARY CREDITS - COMPLIANCE

17.1 General Rules for Examination of Documents - Responsibilities of Banks
17.1.1 Main principles
17.1.2 Banks responsible for examination of presented documents
17.1.3 Time period for examination of documents
17.2 Examination of Documents in Practice
17.2.1 General requirements examined by banks
17.2.2 Amount payable, quantity of goods
17.2.3 Place for presentation
17.2.4 Time for presentation
17.2.5 Complying presentation
17.2.6 Presented documents must not be in conflict

18. GENERAL RULES OF EXAMINATION APPLICABLE TO ALL DOCUMENTS

18.1 General Rules Related to the Content and Issuers of Documents
18.1.1 Issuer of documents
18.1.2 Further rules related to the content and issuers of documents
18.1.3 Documents issued or countersigned by the applicant
18.2 Expressions Not Defined in UCP 600
18.3 Conflict in Data
18.4 Description of Goods, Services or Performance
18.4.1 Description of goods, services or performance in commercial invoice
18.4.2 Description of goods, services or performance in documents other than the commercial invoice
18.5 Misspellings or Typing Errors
18.6 Mathematical Calculations
18.7 Shipping Marks
18.8 Abbreviations, Use of Virgules, a Comma when Indicating a Range of Data
18.8.1 Abbreviations
18.8.2 Use of virgules
18.8.3 Use of a comma when indicating a range of data in a credit
18.9 Documents Issued in Multiple Pages and Attachments or Riders
18.10 Title of Documents and Combined Documents
18.11 Documents for which the UCP 600 Transport Articles Do Not Apply
18.11.1 Non-transport documents
18.11.2 Copies of transport documents covered by UCP 600 articles
18.11.3 Courier receipt, post receipt and certificate of posting in respect of the sending of documents, notices and the like
18.12 The Need for Completion of a Box, Field or Space in a Document
18.13 Language of Documents
18.14 Rules Related to Dates of Documents
18.14.1 Date of issuance of a document v. date of issuance of the credit, date of presentation, date of signing, date of the event described in the credit
18.14.2 The need for a document to be dated
18.14.3 Date of issuance after the date of shipment
18.14.4 Further rules related to dates and other expressions of timing
18.15 Rules Governing Signatures
18.15.1 General rules governing signatures, requirement for a document to be stamped
18.15.2 Which documents must be always signed?
18.16 Rules Governing Legalization, Certification, etc. of Documents
18.17 Rules Governing Correction and Alternations
18.18 Addresses and Contact Details of the Beneficiary and the Applicant in Documents
18.18.1 General rule regarding addresses and contact details of the Beneficiary and the Applicant
18.18.2 Rules regarding the address and contact details of the Applicant appearing as part of the consignee or notify party details on transport documents
18.19 Originals Versus Copies of Documents
18.19.1 General rule regarding presentation of original(s)
18.19.2 Which documents are accepted by banks as originals?
18.19.3 Are originals or copies requested?
18.19.4 An original in lieu of a copy (non-original)
18.19.5 Copy of a document
18.19.6 Request for presentation of multiple documents

19. EXAMINATION OF INDIVIDUAL DOCUMENTS

19.1 Financial Documents
19.1.1 Draft
19.2 Commercial Documents
19.2.1 Commercial Invoice
19.2.2 Consular Invoice
19.2.3 Customs Invoice
19.2.4 Certificate of Value (and Origin)
19.2.5 Certificate of Quality
19.2.6 Inspection Certificate
19.2.7 Health, Sanitary, Veterinary and Similar Certificates
19.2.8 Phytosanitary, Fumigation and Similar Certificates
19.2.9 Packing List
19.2.10 Weight List
19.2.11 Certificate of Origin
19.2.12 Movement Certificate
19.2.13 Beneficiary’s Certificate
19.2.14 Taking Over Protocol (Handing Over Protocol, Acceptance Protocol)
19.3 Transport Documents
19.3.1 Ocean Bill of Lading
19.3.2 Non-negotiable Sea Waybill
19.3.3 Charter Party Bill of Lading
19.3.4 Multimodal Transport Document
19.3.5 Air Waybill
19.3.6 Road Transport Document
19.3.7 Rail Transport Document
19.3.8 Inland Waterway Transport Document
19.3.9 Courier Receipt
19.3.10 Post Receipt and Certificate of Posting
19.4 Other Documents Related to Transport of Goods
19.4.1 Freight Forwarder’s Certificates
19.4.2 Cargo Receipt
19.4.3 Vessel Certificate (Certificate of Vessel Age, Seaworthiness, etc.)
19.5 Insurance Documents

ANNEX 1 - SWIFT MT 700 Issuance of a Documentary CreditANNEX 2 - SWIFT MT 707 Amendment to a Documentary CreditANNEX 3 - BibliographyABOUT THE AUTHOR

Author

Documentary Credits in Practice is authored by Pavel Andrle, an established international trainer and consultant in trade finance and long-time member of the ICC Banking Commission.

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Author

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