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Written by Editor
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Wednesday, 16 November 2005 |
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Page 3 of 3
Various conditions can be placed on a letter of credit, such as to pay parts of the sum on shipment and/or arrival, or for it to be used simply as a guarantee to obtain payment on an unpaid invoice, or for a revolving credit line where there are regular shipments from a supplier to a customer.
Some letters of credit provide funding by means of drafts issued with the original, which operate like cheques. A beneficiary presented with an LC draft who has questions about it should contact the issuing bank.
The issuance and enforcement of letters of credit are normally subject to publications of the International Chamber of Commerce (ICC) such as UCP, eUCP, ISP98 or ISBP, however a letter of credit may state the conditions that govern its enforcement, including Article 5 of the Uniform Commercial Code(typically used in the United States); but the extensive use of LC's in international transactions mandates that one contemplating becoming a party to a transaction involving one be familiar with the laws of other countries which may have jurisdiction over a dispute.
The current ICC publications cover the following types of transactions.
* UCP - Commercial letters of credit (The most current publication is the UCP 500, however letters of credit can be subject to this publication or earlier publications if so noted in the letter of credit.)
* e-UCP - Commercial letters of credit that allow for electronic presentations
* ISP98 - Standby letters of credit (The UCP may also be used for standby letters of credit, but these practices are not as well suited for a stanby letter of credit situation)
* ISBP - This is actually a suppliment to the UCP which attempts to standardize banking practices worldwide.
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