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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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What is the difference between Documentary Collection terms D/P and D/A?

Definition of Collection:

In international trade, a collection refers to a process where a seller (exporter) entrusts their bank to collect payment from the buyer (importer) for goods sold. This involves the seller's bank sending the necessary shipping documents (e.g., bill of lading, invoice) to the buyer's bank with instructions on how to release these documents to the buyer.

ICC URC 522:

This process is governed by the International Chamber of Commerce's Uniform Rules for Collections (URC 522), a set of international best practices for handling documentary collections.

DA vs. DP:

  • DA (Documents Against Acceptance):

    • The buyer accepts a time draft (a promise to pay at a future date) drawn by the seller.
    • Upon acceptance of the draft, the buyer's bank releases both the shipping documents and the goods to the buyer.
    • This carries higher risk for the seller as payment is not immediate.
    • Suitable for established business relationships with trusted buyers.

  • DP (Documents Against Payment):

    • The buyer makes full payment to the buyer's bank before receiving the shipping documents.
    • The buyer's bank then releases the documents to the buyer, allowing them to claim the goods.
    • This offers greater security for the seller, ensuring payment before the buyer receives the goods.
    • More suitable for transactions with new or less creditworthy buyers.

Key Considerations:

  • Risk Profile: DA involves higher risk for the seller due to the deferred payment.
  • Buyer's Creditworthiness: DP is generally preferred for buyers with uncertain credit history.
  • Business Relationship: DA may be suitable for long-term relationships with trusted buyers.
  • Negotiation: The choice between DA and DP should be carefully negotiated between the buyer and seller based on their specific circumstances.

In summary:

Documentary collections, particularly DA and DP terms, provide a structured framework for international trade transactions. By understanding the nuances of each term and adhering to the guidelines outlined in ICC URC 522, both exporters and importers can mitigate risks and ensure smooth and secure trade operations.

Disclaimer: This information is for general guidance only and does not constitute legal or financial advice.





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