Documentary Credits provides the seller and the buyer with independent assurance in the exchange of goods for payment. The seller has the irrevocable undertaking of the Issuing Bank that the seller will receive payment provided the following conditions are satisfied.
1. The seller presents the documents as stipulated in the credit
2. The terms and conditions of the credit have been complied with.
The buyer, as Applicant of the Credit, has the undertaking of the Issuing Bank that no payment will be made under the credit unless the above conditions are complied with. In view of the comfort provided to both the seller and the buyer by the independent undertaking of the Issuing Bank, Documentary Credits are often a preferred method of payment in International Trade.
The risks under Documentary Credits arise from the complexities involved due to more than one country being involved in a transaction. Thus there may be differences in the laws, customs, governing the international transactions of the countries concerned which may lead to various problems. The major risks involved are as follows. To be Continued............
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