In a documentary credit or letter of credit, payment is made upon presentation of the correct documents, and there is no option not to make the payment should the goods be faulty. It is important to remember that in a credit, banks check the documents, not the goods (Art. 5 of the UPC 600)
The exporter must meet all the terms and conditions of the credit, so it is fundamental that these terms are perfectly clear and have been previously negotiated. Otherwise, the guarantee of payment collection becomes null and void, and it is up to the importer whether payment is honoured or not.
- Operating risk caused by correct interpretation of the instructions received from the ordering party.
- Pure risk, since the issuing bank is committed to honouring payment from the moment the credit is opened
Any error when checking the documentation can cause the issuing bank or the ordering party to refuse to pay documents that, when checking them, they deemed to be correct.
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