Logistics, Trade Administration and Supply Chain

Under Article 48 of the Uniform Customs and Practice (UCP) No. 500, describes a transferable credit as "A transferable credit is a credit under which the beneficiary (first beneficiary) may request the authorized bank to pay, incur a deferred payment undertaking, accept or negotiate (the "transferring bank"), or in the case of a freely negotiable credit, the bank specifically authorized in the credit as a transferring bank, to make the credit available in the whole or in part to one or more other beneficiary/ies (second beneficiary/ies)". A credit can only be transferred if it is expressly designated as "transferable" by the issuing bank. A nominal credit may not be transferred. If a credit bears the terms = divisible, assignable or transmissible, such terms do not render the credit as transferable. Even if a credit designates as transferable, the transferring bank is under no obligation to such transfer, but if it does consent to the transfer it shall...

A documentary credit is a flexible payment instrument. I has became increasingly popular as an universally accepted method of payment. In fact, over the years, it has developed and earned the respect, trusts and confidence of the international trade community and bankers as well. There are other variations of a documentary credit, depending on the wordings, terms and conditions incorporated into the said credit. Standby Credit Standby credit was not specifically mentioned until the 1983 revision of the UCP No. 400. In the united States, the bankers are not permitted to issue guarantees under the Federal Law. Standby credit was introduced in the 1920s to overcome the problem of the prohibition. A standby credit may be utilized for various transactions, for example to guarantee the repayment of a loan, for payment of services rendered, for goods sold, etc. Revolving Documentary Credit A buyer or importer may need to import X tons of Y products every month. Instead of requesti...

Article 10 of the UCP No. 500 states that a documentary credit must clearly indicate whether it is available by sight payment (sight documentary credit), by deferred payment (deferred payment documentary credit), by acceptance (acceptance or term documentary credit) or by negotiation (negotiation documentary credit). Thus a documentary credit may state that payment is to be effected upon presentation of the stipulated documentations and compliance with the terms and conditions of the credit or after a certain period e.g. 60 days from the date of presentation of documents, from date of bill of lading or from the date of invoice. Sight Documentary Credit A documentary credit may provide for sight payment (sight documentary credit). This means that the beneficiary may present a sight bill of exchange (called for in the credit) together with the other supporting documentations and payment would accordingly be effected. Deferred Payment Documentary Credit A deferred payment docume...

An irrevocable documentary credit constitutes a definite legal undertaking of the issuing bank. It cannot be amended or cancelled without the agreement of the issuing bank, the confirming bank (if applicable) and the beneficiary . Thus, the beneficiary can expect payment from the issuing bank (or nominated bank) provided the stipulated documents are presented and the terms and conditions of the credit are duly complied with. An irrevocable credit only carries the legal undertaking of issuing bank to remit. The bank which advises the credit does not undertake to pay. This kind of credit is known as an (unconfirmed) irrevocable credit. If the beneficiary wishes the advising bank to additionally guarantee payment, he should arrange for the irrevocable credit to be confirmed by the advising bank (or another suitable bank). This credit is then known as a confirmed and irrevocable documentary credit. Confirmed and Irrevocable Documentary Credit If an irrevocable credit is confirmed by the ad...

A revocable credit may be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. However, Article 8 UCP No. 500 states "the issuing bank must: reimburse another bank with which a revocable credit has been available for sight payment, acceptance or negotiation for any payment, acceptance or negotiation made by such bank prior to receipt by it of notice of amendment or cancellation against documents appear on their face to be in compliance with the terms and conditions of the credit; reimburse another bank with which a revocable credit has been made available for deferred payment, and if such a bank has, prior to receipt by it of notice of amendment or cancellation taken up documents which appear on their face to be in compliance with the terms and conditions of the credit". Since a revocable credit is fraught with danger, the seller/beneficiary should avoid accepting such a credit. Nevertheless, revocable credits are seldom being us...

In order to prevent misinterpretations, misunderstanding and other associated problems connected with the interpretation of trade terms, phrases and divergences in customs and practice in the international trade, the International Chamber of Commerce (ICC) has come out with a standard set of rules and interpretations known as the Uniform Customs and Practice for Documentary Credits, Publications No. 500 (in short UCP No. 500). Briefly, the UCP No. 500 sets out universally accepted procedures, liabilities, responsibilities and various terms and conditions and their respective interpretations connected with international trade. The UCP has been adopted practically by every nation in the world. Although the UCP generally does not have the force of law, their provisions are binding on the relevant parties who had adopted them. Thus, as a requirement, every application and documentary credit and amendment have to bear the words, "Subject to Uniform Customs and Practice for Documentary ...

Article 2 of the Uniform Custom and Practice for Documentary Credit defines a documentary credit as: "For the purpose of these articles, the expression documentary credits and standby letters of credit (hereinafter referred to as credits ) means any arrangements, however named or described, whereby a bank (the issuing bank) acting on request and on the instructions of a customer (the applicant) or on its own behalf: is to make a payment to or to the order of a third party (the beneficiary) or is to accept and pay bills of exchange (drafts) drawn by the beneficiary, or, authorizes another the bank to effect such payment or to accept and pay such bills of exchange (drafts) or, authorizes another bank to negotiate, against stipulated documents, provided that the terms and conditions of the credit are adhered with". In a layman language, a documentary credit may be describe as a legal undertaking in writing. It is issued by the customer's bank (also known as the issuing ba...