Documentary Operations

ASB offers you to minimize risks in international trade through documentary Letters of credit. In addition to being a flexible payment method, a documentary letter of credit can also be used as a credit instrument (for short-term financing).

In documentary Letters of credit, the relationship between the participants is not based on a good/service or contract, but on the documents required in the letter of credit, although these documents belong to that contract (UCP 600, paragraph 5).

Instructions for opening a documentary letter of credit must be fully and accurately submitted to the bank.

Only the submission of documents to the bank in accordance with the terms of the letter of credit provides the exporter with unhindered receipt of payment.

FORMS OF DOCUMENTARY LETTERS OF CREDIT:

The level of protection of the interests of the exporter varies depending on the form of the letter of credit:

• Approved letter of credit
• Unverified letter of credit

In an unverified letter of credit, the bank-issuer (buyer's bank) assumes the obligation to pay irrevocably to the seller in case of correct submission of documents in accordance with the terms of the letter of credit opened by him on behalf of the buyer. An unverified form of letter of credit is more economical in cost than an approved form of letter of credit.

In the approved letter of credit, along with the bank-issuer, The confirming bank undertakes to make payments to the exporter in accordance with the terms of the letter of credit. This obligation is independent of the obligation of the bank-issuer. Thus, both the approving bank and the bank-issuer bear separate obligations to the exporter.

This form of letter of credit offers the exporter optimal security of payment, as it maximally limits the risk of payment and at the same time eliminates the country risk of the bank-issuer. That is why a certified letter of credit is more expensive than an unverified form of letter of credit, since the confirming bank charges an additional commission for the risk that it assumes, ensuring the execution of the payment.

Documentary collection is safer for the exporter compared to direct payment methods for goods, but it is not as secure as a documentary letter of credit. For example, unlike a letter of credit, it does not guarantee payment and does not cover credit or political risks. Therefore, before entering into sales negotiations as an exporter, you should assess whether documentary collection is the appropriate payment method for you.

For these reasons, documentary collection operations are less expensive than other documentary transactions and require less time and effort.

In this case, the exporter assumes certain risks by producing goods, shipping them, or providing services before receiving payment.

Therefore, documentary collection is recommended only under the following conditions:

• There must be a high level of trust between the exporter and the importer;
• The exporter should have no doubts about the importer’s willingness and ability to make the payment;
• The importing country should be politically, economically, and legally stable;
• There should be no restrictions, difficulties, or delays related to foreign exchange regulations for international transfers in the importing country.