Mark Abrams

Mark heads up the trade finance offering at TFG where his team focuses on bringing in alternative structured finance to international trading companies.

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Contents

Rules, Practice, and Law

Risk Mitigation

Issuing a documentary credit is not always a simple formality or an act that can be completed in a standard or recurring manner. It often requires attention to detail by the corporate parties and, more importantly, to contain precise wording with a single interpretation.

Documentary credits are transactions prepared according to the specific requirements notified by an applicant, and such provisions should not be restricted to the name of a document but also extend to the data content for that document and, where appropriate, the name of an issuer.

An applicant should ensure that the instructions it provides to its bank for issuing any documentary credit meet the requirements for specifying the appropriate documentary obligations. This will enable the smooth importation of the goods and provide a suitable level of assurance regarding the quality, standard and type of goods purchased.

The content of the sales contract, proforma invoice, or purchase order agreed with the seller should, where appropriate, adhere to these instructions. However, banks will discourage any attempt by the applicant to include, as an integral part of the credit, copies of the underlying contract, proforma invoice, or the like.

Most documentary credit application forms incorporate a choice of the main types of documents under the terms and conditions. For example, they often include invoices, transport documents, insurance documents, packing lists, and weight lists.

Applicants are strongly encouraged to provide the name of an entity required to issue each document and its data content.

UCP 600

ICC rules include the Uniform Customs and Practice for Documentary Credits, introduced to alleviate disparities between national laws on documentary credit practice. The ICC published the current version, UCP 600, in 2007. The ICC do not require banks or countries to indicate adherence to any set of rules as all ICC rules, including UCP 600, are based on the principle that they will apply if the credit is stated to be subject to them.

Find out more here.

Law

Under most documentary credits, the corporate parties involved are domiciled in different countries. For this reason, documentary credits subject to the UCP 600 do not state which particular jurisdiction would apply in the event of any issues or disputes.

However, considering that most documentary credits are issued subject to the UCP 600, a uniform approach is already in place. This dramatically reduces any variances caused by divergent national laws.

Speak to our trade finance team