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Documentary Credit Practices:
Controversy and Guidance
Donald Smith
Principal
Global Trade Advisory Ltd.
Charlotte, NC
USA
Jia Hao
Senior Product Manager
Bank of China,
Yangzou Branch
P.R. China
Hari Janakiraman
Head of Trade Products
ANZ Banking Group Ltd.
Melbourne
Australia
Hugo Verschoren
(moderator)
Consultant
goVer Trade Technologies Ltd.
Antwerp, Belgium
Documentary
Credit
Practices:
Controversy and
Guidance
• SYMPTOMS: Previous comments on this topic from 2017:
• The majority of documentary problems are caused by:
– Poor drafting of the credit;
– Excessive and unnecessary data being added to documents;
– Lack of attention to detail and management of the production,
shipment and document collation processes;
– Lack of understanding of documentary credit workflows and the
principles of UCP 600
Step 1 – What is The Real Problem?
Parties do NOT understand the reason the LC exists:
Movement of Goods and Payment
• Simplifying UCP or Credits will not solve the lack of understanding of the
underlying process which the LC exists to facilitate:
• Applicant: Documents evidencing shipment of ordered goods; what the
typical documents are and how they work and what their content
should be
• Seller: Assurance of timely payment through document prep and
presentation
• Banks: Financing and reimbursement
Step 2 – Why Do These Things Happen?
• Education
• Train your CLIENTS in LC basics:
– What is a LC, How Does It Work, Completing Your Application Form, Basics
of Creating Documents
• Train your STAFF in Issuance, Amendments, Document Examination,
AND HOW CREDITS and TRADE REALLY WORK
• Visit and where necessary Train FREIGHT FORWARDERS like you train
clients
•
Step 3 – Treatment AND CURE
• Increase access to UCP and ISBP 745
– Applicants, Beneficiaries, Forwarders and BANKERS
• Take your staff on a trip to your Clients Factory, Port, Forwarders Office
• 50% of the problems apply to the presented documents: it is a justifiable
assumption that a greater understanding of ISBP 745 would help
alleviate these problems and greatly reduce this percentage
• It is very clear that significant attention must be paid to the
distribution of, and education in, “ISBP”
• AND WHY it Exists – this is a key issue moving forward
Step 4 – HOW DO WE GET THERE?
Should the application of ISBP 745 be widened?
Can the existing ‘Opinions’ process be improved?
Is there a business case to develop
a ‘lite’ version of UCP 600?
WHAT DO YOU THINK
ABOUT
DOCUMENTARY CREDIT
PRACTICES?

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#BCMeeting2019: Documentary Credit Practices

  • 2. Donald Smith Principal Global Trade Advisory Ltd. Charlotte, NC USA Jia Hao Senior Product Manager Bank of China, Yangzou Branch P.R. China Hari Janakiraman Head of Trade Products ANZ Banking Group Ltd. Melbourne Australia Hugo Verschoren (moderator) Consultant goVer Trade Technologies Ltd. Antwerp, Belgium Documentary Credit Practices: Controversy and Guidance
  • 3. • SYMPTOMS: Previous comments on this topic from 2017: • The majority of documentary problems are caused by: – Poor drafting of the credit; – Excessive and unnecessary data being added to documents; – Lack of attention to detail and management of the production, shipment and document collation processes; – Lack of understanding of documentary credit workflows and the principles of UCP 600 Step 1 – What is The Real Problem?
  • 4. Parties do NOT understand the reason the LC exists: Movement of Goods and Payment • Simplifying UCP or Credits will not solve the lack of understanding of the underlying process which the LC exists to facilitate: • Applicant: Documents evidencing shipment of ordered goods; what the typical documents are and how they work and what their content should be • Seller: Assurance of timely payment through document prep and presentation • Banks: Financing and reimbursement Step 2 – Why Do These Things Happen?
  • 5. • Education • Train your CLIENTS in LC basics: – What is a LC, How Does It Work, Completing Your Application Form, Basics of Creating Documents • Train your STAFF in Issuance, Amendments, Document Examination, AND HOW CREDITS and TRADE REALLY WORK • Visit and where necessary Train FREIGHT FORWARDERS like you train clients • Step 3 – Treatment AND CURE
  • 6. • Increase access to UCP and ISBP 745 – Applicants, Beneficiaries, Forwarders and BANKERS • Take your staff on a trip to your Clients Factory, Port, Forwarders Office • 50% of the problems apply to the presented documents: it is a justifiable assumption that a greater understanding of ISBP 745 would help alleviate these problems and greatly reduce this percentage • It is very clear that significant attention must be paid to the distribution of, and education in, “ISBP” • AND WHY it Exists – this is a key issue moving forward Step 4 – HOW DO WE GET THERE?
  • 7. Should the application of ISBP 745 be widened?
  • 8. Can the existing ‘Opinions’ process be improved?
  • 9. Is there a business case to develop a ‘lite’ version of UCP 600?
  • 10. WHAT DO YOU THINK ABOUT DOCUMENTARY CREDIT PRACTICES?