Documentary credit ("credit") means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.
A credit by its nature is a separate transaction from the sale or another contract on which it may be based.
The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600 are rules that apply to any documentary credit (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules. They are binding to all parties thereto unless expressly modified or excluded by the credit.
Standby letter of credits might be subject to either the Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600 or International Standby practices (ISP 98, ICC Publication No.590)
All documentary credits issued subject to the Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600 are irrevocable credits even if there is no indication to that effect.
1. For the Buyers
- Sellers will be paid only if all terms and conditions of Documentary credit have been met (minimum counterparty delivery risk);
- Post-financing that might be arranged in the frames of Documentary credit.
2. For the Sellers
- One of the most secure methods of payment
- Market extension
- Reduction of production risk related to withdrawal of delivery order placed by the Buyer
- A credit by its nature is a separate transaction from the sale or other contract on which it may be based (all disputes arising out of credit related to quality or quantity of goods are settled outside of the credit).
- Independent nature of the credit
Forms of Documentary credits:
- Covered Documentary credit
Documentary credit which is secured/covered by the funds lodged by the customer (including one providing for cash cover transfer to nominated bank under the credit).
- Uncovered Documentary credit
Documentary credit which is issued within the framework of customer's credit line.
- Confirmed Documentary credit
Documentary credit that provides for a second bank's (confirming bank's) undertaking, in addition to that of the issuing bank, to honour or to negotiate a complying presentation.
- Sales or other contract (with customs control registration number assigned, if required)
- Cash cover (for covered Documentary credits) or credit line arranged for the Applicant (for uncovered Documentary credits)
- Documentary credit agreement
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International Relations Department
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