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Types of Documentary credits

Red Clause Documentary credit

A specific type of documentary credit in which an applicant extends an advance payment to a beneficiary for an agreed amount (prior to receipt of transportation documents). The advance is normally paid against receipt and a written undertaking from the Beneficiary to subsequently deliver the transportation documents before the credit expires.

This advance is basically intended to finance the manufacture or purchase of the goods to be delivered under the credit.

Transferable Documentary credit

Transferable credit means a credit that specifically states it is “transferable”. A transferable credit may be made available in whole or in part to another beneficiary (“second beneficiary”) at the request of the beneficiary (“first beneficiary”).

The transferred credit must accurately reflect the terms and conditions of the credit, including confirmation, if any, with the exception of:

  • the amount of the credit,
  • any unit price stated therein,
  • the expiry date,
  • the period for presentation, or
  • the latest shipment date or given period for shipment,

any or all of which may be reduced or curtailed.

Stand-By Letter of credit is similar by its functional use to guarantees.

Standby letters of credit may apply in general to transactions which are based on the concept of default by the applicant to perform its contractual obligations. In the event of default, the beneficiary is permitted to draw under the letter of credit against complying demand for payment and any supporting statement and documents, as required.

By types of payment:

Documentary credits available by payment at sight

Documentary credit that is payable once all stipulated documents are presented the to the nominated bank, confirming bank, if any, or to the issuing bank and that they constitute a complying presentation.

A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have that number of days following the day of presentation to determine if a presentation is complying as stipulated by the Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600.

Documentary credits available by acceptance deferred payment

Documentary credit that is payable a fixed number of days after shipment or presentation of prescribed documents under a complying presentation.

Documentary credits available by acceptance

Documentary credit that is paid by a time draft authorizing payment on or after a specific date, if the terms of the documentary credit have been complied with.

Documentary credits available by negotiation

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.