Bashir-UCP Art1, Trade Payment PDF

Trade Payment, UCP600 Art 1
A presentation by
Kazi A. B. M. Bashir Ahmed CDCS
kazibashirahmed@gmail.com, 01712175979
Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

Disclaimer
The information and opinions expressed in
the following slides are for the study
purpose only. Presenter does not guarantee
their accuracy or completeness, nor does
assume any responsibility for any loss that
may result from the reliance by any person
upon any information or opinions set out
hereunder.

Trade Payment Method
Payment/ Open Documentary Documentary

Collection
Cash in Account Credit
Advance

Payment/Cash in Advance
• I am NOT willing to ship goods
Buyer makes payment due to country risk of the buyer
BEFORE shipment. • It is better to have fund before
shpt to meet up shortage of
fund to produce
But why? goods/merchandise
Seller
• I am willing to encourage seller
to a long term relationship for
better business onward
• I do not feel it risky to pay
before shpt. I am comfortable
with the credit risk and country
Buyer risk of the seller

Sales Contract
How does it look like? Buyer Max Ltd Seller Fine Ltd
Germany China
Item: Basic Woven Shorts 51120 pcs @2.95/pc

Amount: USD150,804.00 FOB Shanghai
Terms of Payment: 50% Advance, 50% after shipment
Shpt date: 24/01/2015
………… …………. Page 1 / 2
What is the Banker’s job? Nothing, if buyer directly pays beneficiary without going
to Bank / FI
Only a fund transfer, if through Bank/FI but
mostly bypassing the trade services desk.
What about Bank No Bank-to-Bank commitment

commitment? No Bank-to-Client commitment
Any ICC rule? No, Not Yet
Mix of payment methods ! Possible for Any combination, if required

Poses LEAST risk to whom? Seller
Poses MOST risk to whom? Buyer

Open Account
What it is? • We did business under Doc
• Buyer pays AFTER goods Credit in the past but now
shipped buyer is no more interested
in DC. At least the ‘Sale’ is
• There might be a pre- secured if we can work under
agreed period for full or open account contract.
partial payment like
– at the end of each month
– 30 days after shipment
– 30 days after receipt of
Seller
goods • Attractive, it allows to examine
– after receipt of sales goods before payment
proceeds of the goods
• Secured, no payment before I am
satisfied
When does it happen? • Plenty of time to pay
• Buyer & seller having a • Cost effective compared to
long-established trading Documentary collection or
relationship Documentary credit
Buyer
Open Account
What is the Banker’s job? Nothing, if buyer directly pays beneficiary without going
to Bank / FI
Only a fund transfer, if through Bank/FI, but

mostly bypassing the trade services desk.

Yes, URBPO (new rule came in 2014)

Any ICC rule? (Uniform Rules for Bank payment Obligation)
It applies only when both buyer’s & seller’s bank agrees to
operate under URBPO
Does URBPO obligate Bank

under open account to pay?
Yes

Open Account
Poses LEAST risk to whom? Buyer
Poses MOST risk to whom? Seller

Documentary Collection as per URC522
‘Collection’ means handling ‘Documentary Collection’
means collection of :
by banks of ‘documents’ in
accordance with instructions
received in order to: either
i. Obtain payment / i. Financial documents
acceptance accompanied by commercial documents
OR
ii. Deliver docs against
payment (DP) or
acceptance (DA) Or
OR ii. Commercial documents
not accompanied by financial documents
iii. Deliver docs on other
terms

Documentary Collection Process
Step 1 Seller ships goods, submits documents to bank
Step 2 Seller’s bank sends docs to buyer’s bank/designated bank with

instruction
Step 3 Buyer’s bank acts as per instruction
Step 4 Buyer pays &/or accepts as per instruction
Step 5 Buyer’s bank receives & forwards payment/acceptance to seller’s

bank on behalf of buyer & delivers documents to buyer
Step 6 Seller’s bank receives payment & gives value to seller

Documentary Collection
What is the Banker’s job? - Receiving, Routing & Delivery of
documents
- Collecting & Channeling Payment

Any ICC rule for this

method ? Yes, currently URC522
Does URC obligate Bank

under Documentary No
Collection to pay?

Poses LEAST risk to Buyer
whom?
Poses MOST risk to Seller

whom?
Is it possible that seller Yes. Possible but ONLY under DP

may reduce its risk under basis collection and if the collection
a Documentary includes document without which
Collection? buyer cannot take control of the
goods or services.
Collection documents containing

Any example? full set of Original Bill Lading

Should a draft under

the documentary
collection be drawn
on a bank?

Documentary Credit
On receipt of complied presentation, we

will pay you as per your instruction. Pls
send documents to our address ……….
………………………………………………

Documentary Credit (DC)
What is this? This is an Undertaking
Who undertakes? Issuing Bank / Issuer
What is undertaken? To pay money
Whom to pay? Beneficiary to whose favor the credit is issued
How Beneficiary gets Beneficiary needs to make a

money? ‘Complied Presentation’
Why issuer pays? Issuer earns by assuming the risk of the

payment from the ultimate payer.
Ultimate payer will pay issuer as per agreement between them
Why would Beneficiary Payment is not dependent on the

prefer it? ultimate payer. Pay is more assured.

Who is the Usually Bank, but may be anyone who is
issuer? acceptable to the ‘Beneficiary’
Who is Usually Seller/Supplier/Middlemen/Service

Beneficiary? provider to whose favor a DC is issued
Why is it? To bridge the trust GAP between

buyer & seller that is evidenced in
other trade payment methods. Buyer
is kept apart from the payment
mechanism & seller (beneficiary)
relies on Issuer rather than on Buyer.

An undertaking from the ‘Issuer’ (usually a Bank)
Then, what is it? of a Documentary credit to pay ‘Beneficiary’
(Seller/Supplier/Middlemen/Service provider) under a
‘presentation’ that is ‘complied’ with the terms
and conditions of the DC
What does it do? It bridges the trust gap between

Buyer & Seller
What about Bank Primarily,Bank-to-Beneficiary undertaking
obligation? Secondarily, Bank-to-Bank undertaking
Any ICC rule? Yes, currently UCP600

Does UCP obligate Bank? Yes, purposely
Documentary Credit, requires docs presentation
Letter of Credit, issued in the form of a letter
What names does it take? Commercial Credit, settles commercial transaction
Standby Letter of Credit, stands by if any default
Name that UCP calls it ‘Credit’

History of Documentary Credit
Started with ‘Traveller’s Letter of Credit’
One of the oldest available examples of a traveller’s-type letter of credit in the archives of The US Library of Congress
It was provided to explorers Captain Meriwether Lewis and Captain William Clark as they
departed on their famous expedition through the western part of the United States.
Washington. US of America. 4 July. 1803.

Dear Sir,
In the journey where you are about to undertake………………………………….............................................................................
…………………………………………………………………………………………………………………………………………
But you will be without money, without clothes, & other necessaries; as a sufficient supply cannot be carried with you from hence. Your resource in that case
can only be in the credit of the US for which purpose I hereby authorise you to draw on the Secretaries of State, of the Treasury, of
War & of the Navy of the US according as you may find your draughts will be most negociable, for the purpose of obtaining money or
necessaries for yourself & your men: and I solemnly pledge the faith of the United States that these draughts shall be paid punctually
at the date they are made payable. I also ask of the Consuls, agents, merchants & citizens of any nation with which we have intercourse or amity to
furnish you with those supplies which your necessities may call for, assuring them of honorable and prompt retribution. And our own Consuls
in foreign parts where you may happen to be, are hereby instructed & required to be aiding & assisting to you in whatsoever may be necessary for procuring
your return back to the United States. And to give more entire satisfaction & confidence to those who may be disposed to aid you, I Thomas Jefferson,
President of the United States of America, have written this letter of general credit for you with my own hand, and signed it with my name....
Th: Jefferson
Who is the Who is the Where is the What is the

issuer? Beneficiary? credit applicable
available? rule?
History of Documentary Credit
What is ICC? International Chamber of Commerce (ICC) formed in 1919
just after World war I (1914-1918) when International Trade
was under serious threat.
What is Uniform Customs & Practice for Documentary Credits

UCPDC? UCPDC was introduced first in 1933 by ICC to bring
uniformity and to remove confusion among countries.
How UCPDC 1933 – UCP 82

evolved over 1951 – UCP 151
time? 1962 – UCP 222
1974 – UCP 290
1983 – UCP 400
1993 – UCP 500
2007 – UCP 600 w. e. f. July 1, 2007

What is MT MESSAGE TYPE
MT700 ISSUE OF A DOCUMENTARY CREDIT
MT700
MT705 PRE-ADVICE OF A DOCUMENTARY CREDIT
MT705 MT710 ADVICE OF A THIRD BANK DOC. CREDIT
MT710 MT720 TRANSFER OF A DOCUMENTARY CREDIT
MT720 MT760 GUARANTEE / STANDBY LETTER OF CREDIT
MT760
?? ALL OF THESE ARE AUTHENTICATED MESSAGE
TYPES UNDER SWIFT
Is SWIFT a NO. But SWIFT is more popular. Without any verification, one
can safely say that any of the above listed messages is
must to open
authentic while other media like mail requires signature
a DC? verification, telex requires test key matching.
Sender : Commerzbank AG, Germany
Receiver : Bank of China, Shanghai, China
F27: Sequence of total : 1/1
F40A: Form of doc credit : Irrevocable
F20: Documentary credit no : 123456
F31C: Date of Issue : 20150101
F40E: Applicable rules : UCP latest version
Today, F31D: Dt & Place of Expiry : 20150630 China
F50: Applicant : Buyer Max Ltd, Germany
How does F59: Beneficiary
F32B: Currency code, Amt
: Seller Fine Ltd, China
: USD35,329.25
it look F41D: Available with, By
F42C: Drafts
: Bank of China, By Payment
: At Sight
F42A: Drawee : Bank of China
like? F44E: Port of Loading : Any Chinese port
F44F: Port of discharge : Any German port
F44c: Latest date of shpt : 20150615
F45A: Description of goods : 21,567 pcs pant
F46A: Documents required : 1. Commercial Invoice 2. BL 3. CO
F47A: Additional conditions : BL must show LC number
F78C: Instruct to paying bank : Pls debit our a/c held with you

Today,
How
does a
mail LC
look like?

How a Documentary Credit works?
Issuing Bank Credit Beneficiary
Issuing Bank Complied Documents Beneficiary
Issuing Bank Payment Beneficiary

What if Beneficiary doubts authenticity, genuineness
of the credit ?
Issuing Bank Credit Advising Bank Credit Beneficiary
Issuing Bank Complied Documents Beneficiary
Issuing Bank Payment Beneficiary

What if Beneficiary doubts whether issuing bank will
really pay?
Document Document
Issuing Bank Nominated Bank Beneficiary
Reimbursement Payment

What if Nominated Bank is not comfortable with the credit risk of the
issuing bank?
Issuing Bank Document Document

Beneficiary
Reimbursement Payment
Nominated Bank
Claim
Reimbursing
Bank Reimbursement

What if Nominated Bank is still uncomfortable with the credit risk of the
issuing bank, the reimbursing bank and country risk of the issuing bank?
Issuing Bank Document Document

Nominated Bank
Beneficiary
Payment
Do
This option becomes
cu less important but alive
me
Reimbursement nt
Claim Document
Reimbursing Confirming Beneficiary
Bank Reimbursement Bank Payment

ICC Rules
Underlying Bankers are Neutral & Honest
Assumptions
Rules does not intend to protect Fraud but to
bring uniformity
Under conflicting situations, local law will

prevail over the rules
Sanctions are automatically applied and will

prevail over the rules
Text of the credit will supersede rules

Credit Vs ICC rules
How many ICC
rules are there One, UCP
Developed By ICC
for a Supports commercial trade
Also supports issuance of Standbys
Documentary Two, ISP98

Developed By US Govt.
Credit Endorsed by ICC

Effective from January 1, 1999
Supports Standbys only

Credit Vs ICC rules
Then, what is ISBP?
It’s a supplementary to UCP
‘International Standard Banking Practice’ – helps
understand the UCP better, with explanation and clarification
Is there any other supplementary rule for UCP?
Yes, eUCP Supplements electronic presentation

Documentary
Is there any supplementary rule for ISP98?
Credit No
Kazi A. B. M. Bashir Ahmed CDCS | 01712175979

UCP600, Article 1
The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC
Publication No. 600 (“UCP”) are rules that apply to any documentary credit
(“credit”) (including, to the extent to which they may be applicable, any standby letter of
credit) when the text of the credit expressly indicates that it is subject to these rules.
They are binding on all parties thereto unless expressly modified or excluded by the
credit.
Application ICC states that “UCP” are

of UCP ‘rules’ only & not ‘law’.
Nobody is bound or forced to

apply “UCP” to administer a
documentary credit transaction.

UCP600, Article 1
apply to any
Publication No. 600 (“UCP”) are rules that
documentary credit (“credit”) (including, to the extent to which

they may be applicable, any standby letter of credit) when the text of the credit expressly
indicates that it is subject to these rules. They are binding on all parties thereto unless
expressly modified or excluded by the credit.
Application ICC calls a documentary credit just

of UCP as “Credit”
It applies to ANY “Credit” & covers both
- Commercial Documentary Credits

- Standby Letters of Credit

UCP600, Article 1
The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600
(“UCP”) are rules that apply to any documentary credit (“credit”)
(including, to the extent to which they may be applicable, any standby letter of credit) when the text of the
credit expressly indicates that it is subject to these rules. They are binding on all parties thereto unless
Application
of UCP The obligations of the issuer in both cases are the
same.
Similarities
between
commercial In both cases issuer is obligated to pay under a
& Standby complied presentation.
letters of
credit
Issuer is not concerned of the underlying sales
contract or goods, services or performance to which
such contract may relate.

UCP600, Article 1
Application
Commercial documentary credit is intended to serve as a
of UCP
means of ‘principal payment mechanism’ and Standby
as a ‘Contingency payment mechanism’ which can be
Differences triggered if there has been some sort of non-performance
between or default.
commercial
& Standby Standbys act as a Guarantee if there Is a failure to
letters of perform a contractual undertaking.
credit
The difference largely lies in practice and terminology
because both issuers of commercial & standby letters of
credit PAY only against complied presentation.

UCP600, Article 1
apply
I must to anyagainst
claim
(“UCP”) are rules that documentary
thecredit (“credit”)
Application (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the
of UCP credit to get paid because

this is the only option we

Commercial have agreed upon
Vs Standby
letters of Commercial
credit Documentary
Credit
from I will claim against this
beneficiary’s credit only if I am not
point of view paid by buyer either
under a
commercial
Standby directly or under another
letters of
deal credit
credit or under
documentary collection
Credit Vs ICC rules
1. UCP is prepared for and can be applied to
Quiz A. Commercial documentary credit only
B. Standby letter of credit only
C. Any documentary credit
D. Commercial transactions only
2. ISP98 can be applied to
A. Commercial documentary credit only

B. Standby letter of credit only
C. Both A & B
D. Commercial transactions only

Credit Vs ICC rules
3. From the given options, a commercial
Quiz documentary credit should ONLY be opened
under
A. UCP
B. ISP98
C. Both A & B
D. UCP600
4. Within the given options, a standby letter of
credit can be opened under
A. UCP only
B. ISP98 only
Critical Thinking C. UCP600 only
D. All of the above

UCP600, Article 1
Publication No. 600 (“UCP”) are rules thatapply to any
they may be applicable, any standby letter of credit) when the text of the
credit expressly indicates that it is subject to

these rules. They are binding on all parties thereto unless expressly modified or
excluded by the credit.
Subject to
Application Sender : Commerzbank AG, Germany
Receiver : Bank of China, Shanghai,UCP
China
of UCP F27: Sequence of total : 1/1
F31D: Dt & Place of Expiry : 20150630 China
F59: Beneficiary : Seller Fine Ltd, China
F32B: Currency code, Amt : USD35,329.25
F41D: Available with, By : Bank of China, By Payment

UCP600, Article 1

may expressly
these rules. They are binding on all parties thereto unless expressly
state modified or
excluded by the credit. elsewhere in
the credit
Application F20: Documentary credit no : 123456
of UCP F40E: Applicable rules : ……………….
F50: Applicant : Buyer Max Ltd, Germany Subject to
F59: Beneficiary : Seller Fine Ltd, China UCP
F47A: Additional conditions : This Credit is subject to UCP600

UCP600, Article 1
they may be applicable, any standby letter of credit) whenmay
theexpressly
text of the
credit expressly indicates that it is subject state to
elsewhere
these rules. They are binding on all parties thereto unless in
expressly modified or
excluded by the credit. the credit

of UCP F40E: Applicable rules : See field 72
F50: Applicant : Buyer Max Ltd, Germany Subject to
F59: Beneficiary : Seller Fine Ltd, China UCP
F47A: Additional conditions : Credit no. must appear in all docs
F78C: Instruct to paying bank : Complied presentation will be honored
F72: Sender to receiver info : This credit is subject to UCP600
UCP600, Article 1
credit expressly indicates that it ismay subject to

expressly
these rules. They are binding on all parties thereto unless expressly
state modified or
excluded by the credit. elsewhere in
the credit
Application
of UCP F31C: Date of Issue : 20150101
F40E: Applicable rules
F31D: Dt & Place of Expiry
: ……………….
: 20150630 China
Not
F50: Applicant : Buyer Max Ltd, Germany subject
F32B: Currency code, Amt : USD35,329.25 to UCP !
F47A: Additional conditions : This credit is subject to ISP98

UCP600, Article 1
Use of the wordNo.
Publication ‘OTHER’
600 (“UCP”) are rules that apply to any
will signify that UCP 600 and ISP
98 do not apply to the transaction:
in suchthey may the
case, be applicable,
documentaryany standby letter of credit) when the text of the
credit
credit, in field 47Aexpressly
of the SWIFT indicates that it ismay subject
expresslyto
message, should
these indicate
rules thebinding on all parties thereto unless expressly
. They are state modified or
applicable rules or law
excluded by the credit. applying elsewhere in
thereto. the credit
of UCP F40E: Applicable rules : Other
Not
F50: Applicant : Buyer Max Ltd, Germanysubject to
F59: Beneficiary : Seller Fine Ltd, China UCP !
F47A: Additional conditions : This credit is subject to English law

UCP600, Article 1
5. A credit can be opened under
Quiz A. UCP
B. ISP
C. Any other rules other than A & B
D. Law of any country
E. Any of the above
F. All of the above
6. A Guarantee/Standby can be opened under

A. UCP
B. ISP
C. Any other rules other than A & B
D. Law of any country
E. Any of the above
F. All of the above

UCP600, Article 1
documentary credit (“credit”) (including, toSubject to
the extent to which
UCP &
subject to
ISP !
Application
F40E: Applicable rules : UCP600 & ISP98 latest version
F47A: Additional conditions : Credit number must appear on BL

UCP600, Article 1
Application they may be applicable, any standby letter of credit) when the text of the
of UCP credit expressly indicates that it is subject to
What is
meant by
‘LATEST
Version in effect on
VERSION’ the date of issuance
UCP600, Article 1
Publication No. 600 (“UCP”) are rules thatapply to any Subject to UCP
documentary credit (“credit”) (including, & to the extent to which
subject to
they may be applicable, any standby letter of credit) when thein
URR text
effectof the
credit expressly indicates that it is onsubject
01.01.2015 to !
Application
F40E: Applicable rules : UCPURR latest version
F47A: Additional conditions : Credit number must appear on BL

UCP600, Article 1
apply to any

Any “Credit” also includes different

Application characteristics of a DC like
of UCP - Revocable documentary credit
- Irrevocable documentary credit
- Transferable documentary credit
- Back to Back (counter) documentary credit
- Clean documentary credit
- Advance payment (red clause) documentary credit
- Revolving credits & Installment drawings or shipment
- Evergreen & Annually renewable documentary credit
- Documentary Credits established under aid agreements

UCP600, Article 1
apply to any

Application they may be applicable, any standby letter of credit) when the text of the credit expressly
of UCP expressly modified or excluded by the credit.
Art2 defines credit

Irrevocable “Credit means any arrangement, however named or described, that is
Documentary irrevocable and thereby constitutes a definite undertaking of the issuing
Credit bank to honour a complying presentation.”
Art3 further states

“A credit is irrevocable even if there is no indication to that effect.”
Any Credit subject to UCP600 is

Understanding IRREVOCABLE even if there is no
such indication
UCP600, Article 1
apply to any
Application documentary credit (“credit”) (including, to the extent to which
of UCP they may be applicable, any standby letter of credit) when the text of the credit expressly
Irrevocable
Documentary Sub-article 10 (a) states
“a credit can neither be amended nor cancelled
Credit
without the agreement of the issuing bank, the
confirming bank, if any, and the beneficiary.”
On any change, issuing bank &

What is beneficiary must agree. If there is a
irrevocability confirming bank then the confirming
bank must also agree on the change.
UCP600, Article 1
Then, is it apply to any

possible to documentary credit (“credit”) (including, to the extent to which

open a indicates that it is subject to these rules. They are binding on all parties thereto unless
Revocable
Yes, but the credit
Credit
Under
UCP600 1. Must state that it is revocable
2. Must incorporate terms and conditions
that will apply to the revocability
UCP600, Article 1
apply to any

Revocable
NOT a fair exchange for goods
Credit No security of payment to beneficiary
Usually can be cancelled/amended at any time

features without the agreement of the beneficiary
Unusually, Issuing bank is liable to pay

any bank that has paid under the credit
Pls Note
before that [any] bank has received the
notice that the credit had been revoked.

UCP600, Article 1
Art 38 states “Transferable credit means a credit
that specifically states it is “transferable”
Sender : Commerzbank AG, Germany
Receiver : Bank of China, Shanghai, China
F27: Sequence of total : 1/1
F40A: Form of doc credit : Irrevocable Transferable
Transferable
Credit F20: Documentary credit no

F31C: Date of Issue
F40E: Applicable rules
: 123456
: 20150101
: UCP latest version
.
.
F47A: Additional conditions : This credit is transferable

UCP600, Article 1
apply to any documentary credit (“credit”)
(“UCP”) are rules that
When the beneficiary is the manufacturer or
producer, a credit is issued in favour of the
beneficiary (seller), who ships the goods,
presents the stipulated documents and claims
payment.
In some cases, the applicant (buyer) conducts

business with an intermediary trader, agent or
middleman who buy or make arrangements for the
Transferable purchase of the goods from one or more other
sources before supplying them to the buyer
Credit (applicant).
Typically, traders operate on narrow margins: they

do not carry stocks of goods and have limited
working capital.
UCP600, Article 1
The basic idea underlying this technique is
that the documentary credit issued in favour
of the trader can be used as a means of :
paying the sources act as security for
(suppliers) from payment for such
which the goods goods.
Transferable are obtained
Credit It also allows for the transfer of the undertaking in

the documentary credit to another seller (who will
become known as the second beneficiary).

UCP600, Article 1
Come on !
I am the expressly modified or excluded by the credit.
Transferable credits may not always support
solution suppliers !
Terms of sales Transferable Buyer
contract between credit may (Applicant) &
buyer (applicant) not allow all seller
Back to Back & seller changes that (beneficiary)
(beneficiary) and are required may not wish
(counter)
seller to support to be
Documentary (beneficiary) & the supplier exposed to
Credit supplier (second

beneficiary) may
the risk of a
transferable
be substantially credit
different

UCP600, Article 1
Back to Back expressly modified or excluded by the credit.
(counter)
Credit A - from Ultimate buyers bank to Trader
Documentary
Credit Credit B - from Advising Bank of Credit A to Supplier

(Back to Back – B is on the back of A)
Credit B - from Traders Bank not being the advising

Bank of Credit A) to Supplier
(Counter – A is the counter for B)
Concept
Back-to-Back and Counter has no significant
differences except only the names

UCP600, Article 1
Two
credit credits
expressly indicates are
that it entirely separate
is subject to these rules. Theyand each
are binding issuing
on all bank
parties thereto unless
Back to Back expressly modified or excluded by the credit.
is liable on its own obligation.
(counter)
Documents from Credit B may be used in part to make a
Documentary
presentation under Credit A.
Credit The trader is obligated to pay the bank that issued Credit
B on its behalf, irrespective of whether proceeds are
obtained under Credit A.
Credit A does not provide security to the bank that issued Credit
B. Credit A merely evidences the means of payment that may be
forthcoming to meet the payment obligation on Credit B.
Accordingly, Credit A provides ‘comfort’ to the bank that issued
Features Credit B, rather than security.
Documents stipulated in Credit B usually mirror the

requirements of Credit A

UCP600, Article 1
A credit without requiring presentation

of any stipulated document
Then what is A simple demand or claim or a draft
required to get paid
Who (what kind of A concern of highest credit standing

Clean applicant) is granted
Documentary with this credit
- Where there is no movement of goods
- Where there is no default situation
Credit Covers which area?
Any example? - Traveller’s letter of credit

- Direct-pay standby
UCP600, Article 1
Buyer agrees to make a part of the

purchase price available to the seller
within the credit amount when issued
Advance
Payment Then what is red
clause?
(red clause)
Documentary Advance payment clause under Telex
LC usually was marked with bold red
Credit letters

UCP600, Article 1
To be deducted from the amount to be
Advance paid to the seller, as beneficiary, upon

Adjustment of presentation of documents.
Payment
advance paid
(red clause)
Documentary A clause authorizes -a receipt for the advance duly signed by
nominated bank to
Credit pay a % of credit
the beneficiary;
amount may require - an undertaking from the beneficiary to

utilise the funds to purchase, pack and
ship the merchandise; or
Features
- an undertaking of the beneficiary to
present the documents as stipulated in the
documentary credit to the nominated bank
within the expiry date, or repay the
advance in the event it does not.
UCP600, Article 1
Nominated bank will claim on the issuing bank in terms of the
credit supported by athatreceipt
credit expressly indicates and
it is subject to / orThey
these rules. undertaking, asthereto
are binding on all parties indicated.
unless
Advance
Control by issuing bank (or applicant) –
Payment advance payment may be subject to
(red clause)
- Shpt booking confirmation from shipping agent on a particular
Documentary vessel, the sailing date of which is consistent with the latest
shipment date in the credit;
Credit - A receipt from an independent warehouse that the goods are /
will be stored and insured;
-agreeing to the retention of the original documentary credit by
Features the nominated bank.
- Sometimes, either because of local custom or at the request of the

issuing bank, the nominated bank may agree to monitor some part
of these arrangements although it has no obligation to do so.

UCP600, Article 1
Allows the credit amount to be reutilized / reinstated
Usually without amendment (i.e. on an automatic basis)
Generally used between applicant & beneficiary having

long-standing trading relationship and experience
Revolving
Documentary
Shipment
Credit Revolving
may be Presentation 1st day of each month
based on End of each month
At a specific time 15th of each month

UCP600, Article 1
Revolving
For example: “USD10,000 may be
Documentary
Dependent drawn each month during the credit’s
Credit upon
6 month validity”
What is the liability at the time of issuance?
TIME 6 x 10,000 = USD60,000.00
Dependent
For example: “USD10,000 may be
drawn upon each utilization”
Upon
What is the liability at the time of issuance?
Types of VALUE Indefinite times x 10,000 = Undeterminable
Revolvement This type of credit should limit the maximum amount of drawing
under the credit which will be the total liability at the time of
opening the credit. Liability at any point in time will be
Pls Note Total Liability less ( - ) total Drawings made

UCP600, Article 1
Revolving
Documentary IN ANY CASE
Credit 1 REVOLVING MUST BE WITHIN

THE VALIDITY OF THE CREDIT.
2 SHIPT MUST BE MADE WITHIN

THE LATEST SHIPT DATE
Types of
Revolvement 3 ART 32 MUST BE EXCLUDED !
Pls Note

UCP600, Article 1
“If a drawing or shipment by installments
apply given
(“UCP”) are rules thatwithin to anyperiods documentary credit (“credit”)
is stipulated in the credit
and
credit expressly indicates that itany installment
is subject to these rules. Theyis
are not
bindingdrawn
on all partiesor shipped
thereto unless
within the period allowed for that installment,
Revolving the credit ceases to be available for that and
Documentary any subsequent installment.”
Credit Why Article 32 needs to be excluded?
Revolving credits and installment

drawings or shipments are
Types of
Revolvement
fundamentally and conceptually
different and contradictory

UCP600, Article 1
Revolving
Documentary Does not require amendment to revolve
AUTIMATIC
“LC to revolve last day of each month”
Credit Revolving
LC liability = Full possible drawing
Requires further authorization or

amendment from the issuing bank
NON
Types of “This LC is to revolve on a monthly basis
AUTIMATIC subject to issuance of amendment”
Revolvement
Revolving
LC liability = Face value of LC OR
LC liability = Amount of Single revolvement

UCP600, Article 1
Revolving
Pls Note
Documentary
Credit Revolving will be deemed to be

automatic if a credit remains silent
Types of
whether the revolving is automatic
Revolvement or non automatic

UCP600, Article 1
Revolving
“USD10,000 to revolve monthly in a six month valid credit”
Documentary
Any amount not drawn in a month can be carried forward
Credit and drawn within any future drawing.
Under this case, say 1 shpt is made on the 1st month for USD8,000.
CUMULATIVE What is the LC liability on the fifth month?
Revolving
Total Liab (possible drawing) of the credit = USD 60,000
Types of (Less) drawings already made = USD 8,000
Revolvement LC Liability on the fifth month = USD 52,000 Pls Note
If no other shpt is to be made then LC liability will remain the same on the 2nd,
3rd, 4th, 5th & even on the 6th month

UCP600, Article 1
Revolving
Documentary
CUMULATIVE Under this case, say 1 shpt is made on the 1st month for USD8,000.
Revolving What is the amount that can be drawn on the fifth month?
Types of
Revolvement Total possible drawing in five months = USD 50,000
(Less) drawings already made = USD 8,000
Amount can be drawn on the fifth month = USD 42,000

UCP600, Article 1
Revolving
Documentary
If no shpt made at all, what is the liability on the sixth month

CUMULATIVE
Revolving Total possible drawing in six month = USD 60,000
(Less) drawings already made = USD 0
Types of
LC Liability on the sixth month = USD 60,000
Revolvement Pls Note
LC liab for the previous months will also be the same

UCP600, Article 1
Revolving
Documentary
Any amount not drawn in a month can NOT be carried
Credit forward within any future drawing.
NON CUMULATIVE
Revolving
What is the LC liability on the fifth month?
Types of
Revolvement Total number of drawings left = 2 (5th & 6th month)
Total Liability on the 5th month = 2 x 10,000 = USD20,000

UCP600, Article 1
Revolving
Documentary
NON CUMULATIVE
Revolving
What is the amount that can be drawn on the fifth month?
Types of
Revolvement Total number of drawing possible = 1 (only 5th month)
Drawing possible on the 5th month = 1 x 10,000 = USD10,000

UCP600, Article 1
Revolving
Documentary
NON CUMULATIVE
Revolving
If no shpt made at all, what is the liability on the sixth month
Types of
Revolvement Total number of drawing possible = 1 (only 6th month)
Total Liability (possible drawing) = 1 x 10,000 = USD10,000

UCP600, Article 1

Revolving
Documentary What is the liability of the issuing bank at the time of
issuance? Please determine maximum possible drawing.
Credit Cumulative (Automatic) = USD60,000
Non Cumulative (Automatic) = USD60,000
Types of Cumulative (Non automatic) = USD10,000

Revolvement Non Cumulative (Non automatic) = USD10,000
At the time of opening the credit, maximum liability for both

Pls Note
cumulative & non cumulative is the same if the revolving is
automatic
UCP600, Article 1
Documentary Credit is normally a short term
instrument for a maximum of 1 year or 360 days.
Credits that are available for a

longer period than normal is
called evergreen or annually
renewable.
Commonly seen in standbys
Evergreen Used in trades where liability

and annually is not easily or readily
renewable determinable or quantifiable
Documentary
even after years
Credit Pls Note
Revolves after expiry !

UCP600, Article 1
Underwriting certain insurance risks
Any
Standby supporting goods delivery
Example without original BL
Standby supporting yearly installment
F47A: “This standby letter of credit will be

Evergreen automatically extended for a further year, without
and annually written amendment, on the first day of January of
renewable every future year from the commencement date
Documentary unless notice is given in writing, at least 30 days prior
to 31 December, sent by registered mail, that this
Credit standby letter of credit will not be extended beyond the
current expiry date.”

UCP600, Article 1
Issuer Aid agencies - World Bank
IMF
ADB,
Int’l Bank for Reconstruction
& Development
Documentary
Credit Issues Letters of Intent or Commitments to

reimburse specific authorized bank
Established Pls Note

under aid Also called ‘Qualified agreements to reimburse’
agreements

UCP600, Article 1
Such qualified agreements to reimburse very often detail
the precise procedure to be followed in establishing or
Documentary processing the documentary credit. For example, they may
well contain requirements that the goods can be sourced
Credit only from donor countries and shipped on vessels operating
in such countries. Banks must exercise care to ensure that
Established the mandatory procedures of the lending agency are

followed completely.
under aid
agreements An almost inevitable feature of these documentary credits is
the delay in obtaining the necessary responses from the
various departments in the aid agencies, because they
often have to follow defined procedures before they are Pls
able to proceed. This may well include delays Note
In reimbursement that the issuing, nominated or confirming
Features bank will need to take into account and are usually
referenced in the qualified agreement to reimburse.

UCP600, Article 1
apply to any documentary credit
(“credit”) (including, to the extent to which they
may be applicable, any standby letter of credit)
when the text of the credit expressly indicates that it is subject to these rules. They are
binding on all parties thereto unless expressly modified or excluded by the credit.
F40E: Applicable rules : UCP600 Why?

Application F45A: Description of goods : 21,567 pcs pant
of UCP F46A: Documents required : 1. Commercial Invoice 2. BL 3. CO
F47A: Additional conditions : Article 18-32 excluded
The functions of a standby letter of credit are different from

those of a commercial documentary credit. When the
situation of default or non performance occurs, the purpose
of many of the articles of UCP 600 (for example, articles
18−32) may already been over because of the default or non
performance.

UCP600, Article 1
F40E: Applicable rules : UCP600 Why?
Application F46A: Documents required : 1. Commercial Invoice 2. BL 3. CO
F47A: Additional conditions : Article 18-32 excluded
of UCP
All UCP rules may not be applicable to standbys
(including, to
Pls Note
the extent to
which they Art 18−32 (mostly dealing with invoice,
may be transport document, tolerance, partial
applicable, shpt and installment drawing) have no
any standby practical application to a standby letter
letter of
of credit.
credit)
There is a separate ICC rule for Standbys

UCP600, Article 1
The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600 (“UCP”) are
rules that apply to any documentary credit (“credit”) (including, to the extent to which they may be applicable, any
standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules. They are binding
on all parties thereto unless expressly modified or excluded by the credit.

Is modification allowed? Yes
What is meant by ‘expressly’? Modified by the text of the credit

F46A: Documents required: But Invoice
Any example ? + ‘Signed’ Commercial Invoice does not
require sign
as per Art 18
But what if modification LC text will supersede UCP

conflicts with the UCP?
& the modification will stand

UCP600, Article 1

F46A: Documents required : +Commercial Invoice
+Country of origin
F47A: Additional conditions : + Document acceptable as presented
What if modification hits the
Still, LC text will supersede UCP
basic elements of the UCP?
What if modification promotes Still, LC text will supersede UCP
accommodation bill? Law might intervene
Modification
Any other example ? F47A: Additional conditions: of Art 14c
+ Presentation period 10 days
Modification
of Art 14b F47A: Additional conditions:
+ Document checking time 3 days

UCP600, Article 1

Is Exclusion allowed? Yes
What is meant by ‘expressly’? Excluded by the text of the credit
Any example ? F45A: Description of goods:

10 MT Sugar
Art 32 excluded on a Revolving F46A: Documents required:
credit + Commercial Invoice
+ Country of origin
F47A: Additional conditions:
+LC to revolve each month on cumulative basis
+ Article 32 excluded

UCP600, Article 1

Can UCP be partially applied? Yes, through
modification or exclusion
Can a sub article instead of full Yes, for example
article be excluded? ‘Art 37C’ excluded
‘Art 38K’ excluded
Any risk on modification or Yes, may require further clarification.

exclusion? For example if Art14B is excluded,
the credit needs to further state the
maximum number of days within which
document checking must be completed.

UCP600, Article 1

Is any ‘addition’ rather than
Yes
modification or exclusion is
allowed ?
Any example ? F47A: Additional conditions:

+All doc must bear LC no & IRC no.
So, is there any guideline for

modification or exclusion ? As per ICC, It should
be kept to a minimum

UCP600, Article 1
Quiz 7. Is it possible to open credit under UCP500 or

any previous version of UCP?
8. Is it possible to open credit under UCP600

applying previous version of Incoterm?
9. Is it possible to open credit under UCP current

version but URR/INCOTERMS non-current
version?
10. Is it possible to open credit under non-current

version of UCP but current version of
Pls try URR/Incoterms?
answering

UCP600, Article 1
1. Your customer imports goods worth £100,000 per annum from the
Questions same suppliers in January each year. Instead of buying all goods in
January they would like to import goods on a monthly basis. They
would like to know if this is possible under a documentary credit.
Can you suggest what type of documentary credit will suit their
requirements?
a. Revocable letter of credit.

b. Transferable letter of credit.
c. Clean letter of credit.
d. Revolving letter of credit.
2. Which type of documentary credit provides a pre-shipment facility to the

beneficiary?
a. Irrevocable credit.
b. Confirmed credit.
Pls try c. Red clause credit.
answering d. Revolving credit.

UCP600, Article 1
3. Which type of documentary credit will overcome the risk to a beneficiary
Questions of default by an issuing bank?
a. Standby credit.
b. Irrevocable credit.
c. Confirmed credit.
d. Revolving credit.
4. A documentary letter of credit is opened at the request of one of your
customers. the customer is:
a. the exporter;
b. the beneficiary;
c. the importer;
d. the drawer?
5. What is the main benefit of an irrevocable documentary credit to the
beneficiary?
a. Assurance of receipt of goods.
b. Assurance of receipt of payment.
Pls try c. Assurance of importer’s creditworthiness.
d. Assurance of issuing bank’s creditworthiness.
answering

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Trade Payment, UCP600 Art 1

Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

Payment/ Open Documentary Documentary

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Item: Basic Woven Shorts 51120 pcs @2.95/pc

What about Bank No Bank-to-Bank commitment

Mix of payment methods ! Possible for Any combination, if required

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Poses LEAST risk to whom? Seller

Poses MOST risk to whom? Buyer

Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

Only a fund transfer, if through Bank/FI, but

What about Bank No Bank-to-Bank commitment

Yes, URBPO (new rule came in 2014)

Does URBPO obligate Bank

Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

Poses LEAST risk to whom? Buyer

Poses MOST risk to whom? Seller

Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

Step 2 Seller’s bank sends docs to buyer’s bank/designated bank with

Step 3 Buyer’s bank acts as per instruction

Step 4 Buyer pays &/or accepts as per instruction

Step 5 Buyer’s bank receives & forwards payment/acceptance to seller’s

Step 6 Seller’s bank receives payment & gives value to seller

Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

What about Bank No Bank-to-Bank commitment

Any ICC rule for this

Does URC obligate Bank

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Poses MOST risk to Seller

Is it possible that seller Yes. Possible but ONLY under DP

Collection documents containing

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Should a draft under

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On receipt of complied presentation, we

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Who undertakes? Issuing Bank / Issuer

What is undertaken? To pay money

Whom to pay? Beneficiary to whose favor the credit is issued

How Beneficiary gets Beneficiary needs to make a

Why issuer pays? Issuer earns by assuming the risk of the

Why would Beneficiary Payment is not dependent on the

Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

Who is Usually Seller/Supplier/Middlemen/Service

Why is it? To bridge the trust GAP between

Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

What does it do? It bridges the trust gap between

Any ICC rule? Yes, currently UCP600

Name that UCP calls it ‘Credit’

Washington. US of America. 4 July. 1803.

Who is the Who is the Where is the What is the

What is Uniform Customs & Practice for Documentary Credits

How UCPDC 1933 – UCP 82

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Kazi A. B. M. Bashir Ahmed CDCS kazibashirahmed@gmail.com | 01712175979

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Issuing Bank Credit Beneficiary

Issuing Bank Complied Documents Beneficiary

Issuing Bank Payment Beneficiary