International payment 4 th Edition World Trade Press

INTERNATIONAL PAYMENT
4
th
 Edition
World Trade Press
Edward G. Hinkelman

Chapter 10: 
Documentary Credits, 
Part 1: Basic Procedure
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Overview
•
A documentary credit is the written promise of a bank, 
undertaken on behalf of a buyer, to pay a seller the amount 
specified in the credit provided the seller complies with the 
terms and conditions set forth in the credit. The terms and 
conditions of a documentary credit revolve around two 
issues: 
(1) the presentation of documents that evidence title to goods 
shipped by the seller, and 
(2) payment.
• 🡪
banks act as intermediaries to collect payment from the 
buyer in exchange for the transfer of documents that 
enable the holder to take possession of the goods.
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Overview
•
Documentary credits provide a high level of protection and 
security to both buyers and sellers engaged in international 
trade. 
•
The seller is assured that payment will be made by a party 
independent of the buyer so long as the terms and 
conditions of the credit are met. 
•
The buyer is assured that payment will be released to the 
seller only after the bank has received the title documents 
called for in the credit.
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Types of Credits
•
There are a number of different types of standard and 
special documentary credits. Each type contains a variety of 
features designed to meet the different needs of buyers, 
sellers, or the banks involved.
•
For example:
- standard documentary credits can be either revocable (may 
be cancelled by the buyer), or 
- irrevocable (noncancellable by the buyer), or 
- confirmed (a second bank, in addition to the buyer's bank, 
guarantees payment) or 
- unconfirmed (payment guaranteed only by the issuing 
bank). 
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