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When it comes to understanding letters of credit, you have to also understand the term UCP600. UCP stands for the “Uniform Customs and Practice for Documentary Credits”. This is a document that lays out a set of rules concerning the use of letters of credit in cross-border transactions.
The UCP600 is maintained by the ICC.
What does the UCP600 describe?
The document covers many areas of using documentary credit and some of them are:
- The standard provides definitions of key terms and concepts
- Liabilities between stakeholders
- Obligations between stakeholders
- Matters pertaining to the use of documents
- Credit transfers
- Disclaimers
Why must the UCP600 be revised periodically?
The UCP standard is revised to address the following areas of concern
- Harmonizing the rules with other well known and used standards
- Keeping up with changes in the banking sector
- Keeping up with changes in transportation
- Keeping up with changes in the insurance industry
Is the UCP600 legally binding?
Yes, in almost all cases it is legally binding if dealing with a country that has adopted it.
Are letters of credit the same as bank guarantees?
These are 2 different documents, used for different purposes. They should not be confused with one another.
What is the latest version of the UCP?
UCP600 is the latest version of the rules.
Does the UCP cover the rules for electronic letters of credit?
The ICC has released a supplementary fo the UCP600 known as the eUCP. This document covers electronic letters of credit.
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