Documentary credit is a payment mechanism used in international trade to ensure timely and secure payment for goods or services. It involves an undertaking by a bank, known as the issuing bank, to pay a specified amount to a beneficiary, usually the seller, upon presentation of complying documents. The workability of a documentary credit depends on the clarity and completeness of its terms and conditions, which should be aligned with the underlying sales contract. Applicant and Beneficiary Details The documentary credit should clearly identify the applicant, who is the buyer or importer, and the beneficiary, who is the seller or exporter. The details should include their full names, addresses, and any other relevant contact information. Documentary Credit Amount and Tolerance The documentary credit should specify the currency and amount of the credit. It may also include a tolerance, which allows for a certain percentage of variation in the amount or quantity of goods shipped. Partial...
Demand guarantees are a common tool used in international trade to provide assurance to the beneficiary that they will receive payment for goods or services rendered. These guarantees are often issued by banks and serve as a form of security for the beneficiary in the event that the applicant fails to fulfill their obligations. One of the key principles governing demand guarantees is the principle of independence. This principle dictates that a demand guarantee is separate and independent from the underlying transaction between the applicant and the beneficiary. In other words, the issuer's obligation to pay under the guarantee is not contingent upon the performance or non-performance of the underlying contract. This principle is enshrined in international standards such as the ICC Uniform Rules for Demand Guarantees (URDG 758), which explicitly state that a demand guarantee is subject only to its terms, whether expressly stipulated in the guarantee itself or incorporated by refere...