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Navigating Non-Compliant Demands: A Guide to Corrections Under Demand Guarantees

Demand guarantees are crucial instruments in international trade, providing security and assurance to beneficiaries. However, the intricacies of these instruments can sometimes lead to discrepancies and non-compliant demands, causing delays and potential disputes. Fortunately, the International Standard Demand Guarantee Practice (ISDGP) provides clear guidelines on how to rectify such situations. Understanding Non-Compliance A demand is deemed non-compliant when it fails to adhere to the specific terms and conditions outlined in the guarantee. This could range from simple errors in documentation to more substantial deviations from the agreed requirements. When a guarantor identifies a non-compliant demand, they must reject it, triggering a process for potential correction. The Beneficiary's Right to Correct Crucially, the ISDGP acknowledges the beneficiary's right to rectify non-compliance. Even if the guarantee explicitly excludes Article 17(b), the beneficiary is still permit...
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Advantage and Disadvantage of Documentary Collection

Documentary Collection, also known as cash against payment, is a common method for settling international trade transactions. Guided by the International Chamber of Commerce's publication no. 522 (URC 522), it involves banks handling documents to obtain payment and/or acceptance from the buyer.  

Advantages:

  • Increased Likelihood of Payment: By requiring payment or acceptance before the buyer can obtain the goods, Documentary Collection significantly enhances the seller's chances of receiving payment.   
  • Assurance of Shipment: While the buyer may not inspect the goods before payment, Documentary Collection provides some assurance that the shipment will arrive.
  • Opportunity for Resale: In a D/A (Documents Against Acceptance) transaction, the buyer can potentially resell the goods before making full payment, improving their cash flow.

Disadvantages:

  • Reduced Payment Security: Compared to methods like payment in advance, bank payment obligations, or documentary credits, Documentary Collection offers lower payment security for the seller.
  • Lack of Bank Guarantee: Unlike documentary credits, there is no bank guarantee of payment, leaving the seller reliant solely on the buyer's creditworthiness.
  • High Costs of Unpaid Collections: If the collection remains unpaid, the seller may incur significant costs, such as finding alternative buyers, particularly for perishable goods, in a foreign market.

Conclusion:

Documentary Collection presents both advantages and disadvantages for international trade transactions. Both sellers and buyers must carefully weigh these factors before selecting this payment method.



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