Documentary credit transactions around the world are in compliance with international practices which has been developed by the International Chamber of Commerce (ICC). Fortunately, with due attention to the revision of the Uniform Customs and Practice for Documentary Credits (UCP), there is an opportunity for merchants as a valuable resource at international level for doing businesses.

In the following report, the business relation that is originated from UCP will be examined. In simple terms, documentary credit is a method of payment that is traded in different countries and can be used to reassure the transaction’s parties with respect to payment method as well as receiving goods.

While the best definition for UCP is “a set of rules agreed by the International Chamber of Commerce, which apply to finance institutions issuing Letters of Credit – financial instruments helping companies’ finance trade. Many banks and lenders are subject to this regulation, which aims to standardise international trade, reduce the risks of trading goods, services, and govern trade”[1].

Considering the above said notes, the required steps for opening a credit alongside with the relevant documents will be scrutinized as hereunder:

  1. Importer (applicant) and exporter (beneficiary), conclude Sales & Purchase Agreement considering all the required conditions (e.g. delivery term, delivery date, insurance coverage, etc.) and then the applicant refers to issuing bank and requests for opening L/C;
  2. The issuing bank requests the applicant to attached the Performa Invoice or Agreement to the application form in order to make sure that the letter of credit form reflects the correct data stated on the aforesaid documents;
  3. The issuing bank is obliged to examine the letter of credits application, afterwards it should secure the payment from the applicant in which the letter of credit will be sent to the beneficiary for the final approval in respect of authenticity of the LC;
  4. After the above said process, the beneficiary initiates the delivery of the goods and providing the advising bank with the relevant documents;
  5. The advising bank sends the relevant documents to issuing bank and remits the amount to the beneficiary if the documents are compatible. Once the verification of the documents by the issuing bank is finalized, it will receive the relevant payment from the applicant;
  6. All the documents are in the name of issuing bank and the bank will negotiate/ endorse the document and give them to the applicant if he/she remits the required amount including issuing bank’s commission;
  7. Subsequently, the importer should refer to the Customs with endorsed documents alongside with other needed documents for the goods’ clearance prior to the payment of Customs duties and taxes. From this point of view, if the goods are not registered beforehand, manifestly the clearance of which will face difficulties or even it may be returned and it will be likely distinguished as illicit goods.

Documents that should be provided under the letter of credit commonly are as below:

  1. Performa invoice
  2. Certificate of origin
  3. Insurance Certificate as well as insurance policy
  4. Inspection certificate
  5. Packing list
  6. Special Certification
  7. Documents, table and shipping status
  8. Bill of Lading (B/L)
  9. Air Transport Document
  10. Road Transport Document
  11. Rail Transport Document

It is worth mentioning that in transportation sector, using vehicles in different platforms is allowed including land, rail, air and sea or even combined transport.

By observing the above said steps, the relevant transaction will be made appropriately under the supervision of the reputable legal entities where the buyer will confidently receive goods and the seller will acquire the payment through the safe route so there is no doubt that such credible documents plays a crucial role in international commercial domain.

Submitted by Dr. Mahnaz Mehrinfar, Ms. Roza Einifar & Ms. Newsha Ardalan

[1] Available from