D-1-2-1- The irrevocable documentary credit for your international transaction

Payment processing is one of the main preoccupations of companies with international transactions. Doing business is important, but compensation is essential. Esandis offers you free training space dedicated to international transactions, and all the skills you need to become an export or import manager. Our objective is to provide you an understanding of the importance of the payment component of an international transaction.

The documentary credit is one of these payment techniques.

1-2-1-1- The documentary credit : reminder

A documentary credit is therefore a payment technique and it is universally used within the scope of international transactions. It is one of the most secure payment techniques. This technique involves the respective importer and exporter banks. They become the guarantors of the transactions, permitting the exchange of the documents against the payment of the goods.

1-2-1-2- The irrevocable documentary credit : definition

As with revocable documentary credits, the irrevocable documentary credit is a payment technique with rules and Uniform Customs and practice, UCP600, that were published by the ICC, International Chamber of commerce, in 1998. It is a written commitment via the respective importer and exporter banks to both deliver the goods to the importer, and to compensate the exporter. In case of non-payment, the importer's bank pays the exporter.

This type of documentary credit can not be amended, revoked or canceled by mutual written agreement. It is, therefore, as the name suggests, "irrevocable." The documentary credit is somewhat unique by virtue of numerous variations that are adapted to every need. The irrevocable documentary credit is one example.

1-2-1-3- The irrevocable documentary credit: advantages

This payment technique has a lot of advantages:
  • This is an irrevocable commitment on the part of the issuing bank to pay and accept the drafts that are presented.
  • The irrevocable documentary credit is somewhat unique in the sense that it gives the recipient greater assurance of payment.
  • In all cases of failure, the bank will pay the amount written on the invoice.
  • The bank also provides the importer assurance that the payment is dependent on the exporter meeting its contractual obligations, for example, the shipment of the goods.

1-2-1-4- The irrevocable documentary credit: drawbacks

This type of payment technique is quite complex to implement and will require either the recruitment of an export or import manager, or working with a qualified bank institution. In essense, the responsibilities of each party are established as follows:
  • Only the importer's bank will guarantee payment.
  • the exporter becomes dependent on the importer's bank.