Letters of Credit and UCP 600
Core principles
A credit is a separate transaction from the underlying sale contract (UCP 600 Art. 4) and banks deal in documents, not goods (Art. 5). The issuing bank gives an irrevocable undertaking to honour a complying presentation (Art. 7); a confirming bank adds its own undertaking in the country of the beneficiary (Art. 8). A credit must state availability - by sight payment, deferred payment, acceptance or negotiation - and the place for presentation (Art. 6).
Examination and refusal
The standard is international standard banking practice: a presentation must comply. The bank has a maximum of five banking days following the day of presentation to examine and decide (Art. 14(b)), and, if it refuses, must give a single notice stating each discrepancy and the disposal of documents (Art. 16). A bank that fails to act in time is precluded from claiming non-compliance. Presentation must be made within the credit's validity and on or before the expiry date at the stipulated place (Art. 14(c), 6(d)).
Numbers and mechanics
Tolerance rules (Art. 30) allow +/-5% on amount/quantity when quantity is not stipulated in packing units or individual items, and +/-10% on quantity if the credit permits; partial shipments are allowed unless prohibited (Art. 31). At least one original of each document is required (Art. 17). Transferability (Art. 38) must be expressly stated.
Traps
"Five banking days" is often miskeyed as calendar days or as a "reasonable time". An amendment is not binding on the beneficiary until accepted (Art. 10(f)). And an LC never protects the buyer against poor-quality goods - only against discrepant documents.
Worked example
Credit expires Friday 30 June. Documents are presented on Wednesday 28 June. The bank has up to five banking days from 29 June to refuse, but refusal must be communicated before expiry considerations lapse - the safest reading is that the bank remains bound if it stays silent.