Requiring an applicant to either issue or cosign documents basically turns the letter of credit process into a collection process where payment isn’t made until the buyer gives their approval. The beneficiary should be able to read a letter of credit and feel that they can comply with the terms by either producing the documents themselves or by having an independent third party issue the documents.
Accountee in letter of credit full#
The applicant is also required to have a full understanding of the UCP 500 to avoid a conflict of terms within the letter of credit.Īdditionally, banks should not issue a letter of credit that requires documents to be either issued or cosigned by the letter of credit applicant. While many banks already have a clause either on their application form or in their security agreement that gives them this right, now under ISBP all banks have the right to make adjustments to the application. If the application for a letter of credit that is presented to a bank for issuance is unclear or ambiguous, the issuing bank has the right to adjust the application in order to make the letter of credit workable. The buyer and seller should agree what documents are going to be required in the letter of credit and who should be generating those documents before the application is ever submitted to the bank. The first section stresses the fact that the underlying transaction and sales contract are a separate transaction from the letter of credit and that the letter of credit should not incorporate the sales contract. It addresses the importance of completing the application accurately. The first section of the ISBP concerns the application and issuance of the letter of credit. The Application and Issuance of a Letter of Credit As more and more banks accept and embrace the ISBP, this double standard will vanish. You may find banks adopting the ISBP on their import letters of credit but going a bit more slowly when handling their export documents for fear that the issuing bank hasn’t accepted the ISBP as their standard operating procedure. I’ve also heard that some banks are slowly accepting the ISBP as their standard method of operating. In talking with other bankers, I’m finding that I’m not alone, although I don’t know that we all feel the same way about everything that has been written. In reading through the publication, I sometimes thought they included information so obvious it need not be said and other times I was surprised by their interpretations. In total the ISBP contains 200 guiding principals. The ISBP is laid out in a similar manner to the UCP 500 it covers the application, general principals, drafts, invoices, shipping documents, insurance and certificates of origin. Instead, it is a guide to how the rules should be applied in a day-to-day working environment.
The ISBP is not intended to amend the UCP 500.
The International Standard Banking Practice To help address some of this confusion, a task force of the International Chamber of Commerce Banking Commission created the International Standard Banking Practice (ISBP), which was published by the ICC in January 2003. After all there is a huge difference between the words “will” and “may.” For instance: “Banks will accept…” versus “Banks may accept….” One is definite and the other appears to be open to interpretation. Sometimes the UCP just doesn’t clarify a situation the way you think it should.
Banks, account parties, and beneficiaries can all disagree about what complies and what does not comply when the shipping documents are checked against the terms of the letter of credit. However, as anyone who has ever worked with a letter of credit knows, there is plenty of disagreement between all parties concerned. The purpose of the UCP is to clarify gray areas that may appear in a letter of credit and to help banks interpret conditions in the letter of credit in a consistent manner. The Uniform Customs and Practice for Documentary Credits (UCP) is published by the International Chamber of Commerce and was revised in 1993 and put into use January 1, 1994.