Letters of credit under UCP 600 and collections under URC 522
Domain scope
This domain tests the documentary credit as an independent bank undertaking and the collection as a bank-handled presentation without a bank payment undertaking. Know UCP 600 examination rules and URC 522 collection mechanics.
UCP 600 core rules
- A credit is independent of the sale contract. Banks deal with documents, not goods, services or performance.
- A nominated bank has up to five banking days after presentation to examine and decide.
- Refusal must be a single notice stating each discrepancy. If the bank fails to comply, preclusion may apply.
- Honour, negotiation, confirmation and transferable credits have distinct meanings.
URC 522 core rules
- Parties: principal, remitting bank, collecting bank and presenting bank.
- Documents against payment releases documents only on payment. Documents against acceptance releases them on acceptance of a draft.
- Banks do not undertake to pay and are not responsible for goods.
Worked example
Documents are presented on 10 June. On 18 June the issuing bank refuses with two discrepancies. Under UCP 600, the five-banking-day period has run, and a single complying refusal was not issued. The bank is likely precluded from claiming the documents are discrepant.
Traps that cost marks
- Applying a reasonable time instead of five banking days.
- Sending separate refusal notices.
- Treating a collection as a credit.
- Releasing documents against acceptance when the instruction is D/P.
- Assuming banks inspect goods.