3/16/2023 0 Comments Block letter chain![]() Payment Disputes Due To Contractual Ambiguities: Interpreting the semantic ambiguities of the legal clauses in the LC contract usually necessitates discretionary determination by the bank.Any amendment in the original message is also costly and time-consuming. Messaging Fees: Most banks use SWIFT network for exchanging messages which charge based on the message type, data, and volume of messages.This becomes a major hurdle for small and medium importers and exporters. Banks charge a fee for providing this service, and it can increase steeply if the parties want to put some additional features. Bank Fees: A letter of credit adds to the cost of doing business.With the advent of electronic message transmission banks started using SWIFT (Society of Worldwide Interbank Financial Telecommunication) which by and large established a standard format for LC with its MT 700 series.Ī typical LC transaction The below figure shows involved stakeholders and sequential steps involved to carry out a complete LC transaction. ICC (International Chamber of Commerce) established Uniform Customs and Practice for Documentary Credits ( UCP 600) as a set of rules on the issuance and use of LC. The risk is mitigated by using banks as intermediaries. ![]() LC guarantee to seller/exporter of getting the pre-agreed price for his goods and at the same time assures buyer/importer of getting the right goods at right time. ![]() Import and Export the major pillars for international trade have been using Documentary Credit or Letter of Credit (LC) since 19 century and counts to around 12–15% of international trade. World merchandise exports totaled US$ 19.48 trillion in 2018. Photo by VanveenJF on Unsplash Introduction
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