Documentary Credit

Documentary Credit

Documentary Credit in Maritime Law

Note: There is more information on maritime/admiralty law here.

The following is a definition of Documentary Credit, produced by Tetley, in the context of admiralty law: [Translation of Documentary Credit in French: “crédit documentaire”] [Translation of Documentary Credit in Spanish: “crédito documentario”] [Translation of Documentary Credit in Italian: “credito documentario”] [Translation of Documentary Credit in German: “Dokumentenakkreditiv”] – A documentary credit is defined as follows in the Uniform Customs and Practice for Documentary Credits, 2007 Revision (UCP 600) (see this maritime law term in this legal dictionary), of the International Chamber of Commerce, Paris (see I.C.C. Publication No. 600), at art. 2:

“any arrangement, however named or described, whereby a bank (the “Issuing Bank”) acting at the request and on the instructions of a customer (the “Applicant”) or on its own behalf,

i. is to make a payment to or to the order of a third party (the “Beneficiary”), or is to accept and pay bills of exchange (Draft(s)) drawn by the Beneficiary, or

ii. authorises another bank to effect such payment or to accept and pay such bills of exchange (Draft(s)), or

iii. authorises another bank to negotiate, against stipulated document(s), provided that the terms and conditions of the Credit are complied with.”

Documentary credits, also known as “banker’s commercial credits” and “commercial letters of credit”, provide the seller in an international sale of goods with security that he will be paid for his goods after they are shipped, even if the buyer fails to pay for them or if his payment is dishonoured. An international sale of goods involving a documentary credit typically involves the following steps:

The buyer of the goods applies in his own country to his bank (the Issuing Bank), on the bank’s standard form, to open a credit in favour of the seller in the other country. The opening of the credit involves an undertaking by the Issuing Bank to pay the contract price of the goods or to accept or pay a bill of exchange (e.g. a draft) drawn by the seller for that sum. The Issuing Bank may require the buyer to provide funds to cover its prospective liability to the seller, or may rely on the buyer’s creditworthiness. The standard conditions of opening the credit may also provide the Issuing Bank with a charge on the goods and the shipping documents relating to them. Once the Issuing Bank approves the opening of the credit, it asks the “Advising Bank” in the seller’s country to advise the seller of the opening of the credit in his favour. The Advising Bank may also undertake to pay the seller, in which case the credit is referred to as a “confirmed” (as opposed to an “unconfirmed”) credit. The seller then provides the Advising Bank with the “shipping documents” (including, among others, the invoice for the goods, the bill of lading (see this maritime law term in this legal dictionary) or sea waybill (see this maritime law term in this legal dictionary) and, in CIF sales, the marine insurance policy). If the documents are in order, the Advising Bank pays, accepts or negotiates the bill of exchange drawn by the buyer, thus paying the seller for the goods and claims reimbursement from the Issuing Bank. The Advising Bank then sends the shipping documents to the Issuing Bank which releases them to the buyer, to permit him to take delivery of the goods at the port of discharge. The “Issuing Bank” makes a charge for issuing the credit, which is passed on to the buyer. See generally, Roy Goode, Commercial Law, 2 Ed., Penguin Books, London, 1995 at pp. 960-1025.

Documentary Credit in Admiralty Law

For information on documentary credit in this context, see the entry on documentary credit in the maritime law encyclopedia.

Hierarchical Display of Documentary credit

Finance > Financial institutions and credit > Credit
Finance > Monetary relations > International finance > International payment

Meaning of Documentary credit

Overview and more information about Documentary credit

For a more comprehensive understanding of Documentary credit, see in the general part of the online platform.[rtbs name=”xxx-xxx”]


Translation of Documentary credit

Thesaurus of Documentary credit

Finance > Financial institutions and credit > Credit > Documentary credit
Finance > Monetary relations > International finance > International payment > Documentary credit

See also


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