What is documentary credit?
“DOCUMENTARY CREDIT” The basis of international trade by means of which payment is made against surrender of specified documents. A letter addressed by a banker to an exporter (usually but not always) undertaking to make payment to him against documents relating to the dispatch of goods. The documents usually required are bill of lading or airwaybill, invoice and insurance documents and if these are in order and shipment has been made in as specified in the credit, the bank will pay for the consignment in exchange for the documents. It is important that the details of the credit are in accordance with the contract of sale between the exporter and importer and letters of credit should be checked carefully when first received by the exporter to ensure that he can comply with its conditions. An international code of practise called the Uniform Customs and Practice for Documentary Credits protects all parties in a documentary credit (See UPC 500).
Related Questions
- What instructions must the exporter give the buyer to ensure he obtains a documentary credit confirmed by UBS and hence the assurance that payment will be forthcoming?
- Are there clauses in a documentary credit restricting the exporters assurance that he will receive payment?
- When a documentary credit has been confirmed by UBS, can the exporter rely on receiving payment?
