Limitations of Documentary Credits
•
Although documentary credits provide good protection and
are the preferred means of payment in many international
transactions, they do have limitations.
•
For example, they do not ensure that the goods actually
shipped are as ordered nor do they insulate buyers and
sellers from other disagreements or complaints arising from
their relationship.
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Role of Banks
•
It is important to note, and not for the last time, that a
fundamental principle of documentary credits is that
banks
deal in documents and
not goods
. Banks are responsible
for issues relating to documents and the specific wording of
the documentary credit as opposed to issues relating to the
goods themselves.
• 🡪
banks are
not concerned if a shipment is in conformity
with
the documents, only that the documents are in
conformity to the wording of the credit.
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The Uniform Customs and Practice
•
Although
documentary credits, in one form or another,
have been in use for a long time,
questions arose about
how to effect transactions in a practical, fair, and uniform
manner.
•
The Uniform Customs and Practice
for Documentary Credits
(UCP) is the internationally recognized codification of rules
unifying banking practice regarding documentary credits.
The UCP was developed by a working committee attached
to the International Chamber of Commerce (ICC) in Paris. It
is revised and updated from time to time; the current valid
version is ICC publication No. 600
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