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- Documents
The documentary credit is one of the most secure payment methods in international trade, offering the exporter a conditional payment guarantee from the importer’s bank.
Documentary credits usually require the presentation of certain documents, which must be complied with before payment can take place. You must be aware that banks examine the documents only with respect to the documentary credit and do not look at contracts, agreements or the condition of the goods.
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Using documentary credits when you export goods or services means that the importer's bank commits itself to paying you when the conditions of the credit have been met. This offers a number of advantages:
It is important to note that the importer's bank will make payment only after you have complied with all its requirements and conditions. You should therefore examine the documentary credit carefully when you receive it.
When you import goods or services, using documentary credits as your method of payment offers several advantages.
These are some of the benefits of documentary credit for importers:
A conventional documentary credit is issued to provide the seller with an undertaking of payment upon the seller's submission of documents in accordance with the terms and conditions of the credit after shipment has taken place.
A standby documentary credit, on the other hand, is an undertaking which is activated only if something goes wrong between the buyer and the seller and the expected payment does not take place. It therefore allows the seller to enforce a claim.
A standby documentary credit acts as a bank guarantee and is subject to international documentary credit rules and standby rules, whereas international guarantees are not subject to a common set of rules to the same extent.
Documentary credits are subject to a set of international rules entitled Uniform Customs and Practice for Documentary Credits (UCP), ICC Publication No. 600.
The rules are set forth by the International Chamber of Commerce (ICC) in Paris and are used by most banks worldwide.
ISBP
In May 2000, the ICC appointed a task force to streamline international banking practice for documentary credit practitioners when checking documents.
The resulting guidelines - International Standard Banking Practice for the Examination of Documents under Documentary Credits (ISBP) - were intended to reduce the number of documents being rejected dramatically by encouraging a uniformity of practice worldwide. The ISBP was approved in 2002 and revised in 2007, making the documentary credit process easier and even more secure.
ISP98
Standby letters of credit are usually subject to the same rules as commercial documentary credits, that is, UCP 600. But a growing number of standby documentary credits are subject to a newer set of rules, known as ISP98, which deals solely with this type of documentary credit.