The issuance of a documentary credit is not always a simple formality or an act that can be completed in a standard or repetitive manner. It often requires attention to detail and, more importantly, to contain wording that is not ambiguous or subject to more than one interpretation.
An issuing bank has a responsibility to work with its clients to ensure that the issued documentary credit fully meets the needs of each applicant in terms of specifying the appropriate documentary requirements, that will enable the smooth importation of the goods, and provide a suitable level of assurance, as to the quality, standard and/or type of goods being purchased; whilst ensuring that the documentary credit is in accordance with the bank's internal policies and procedures and regulatory guidelines to which it must adhere.
When drafting or preparing a documentary credit for issuance, it should be noted that one format does not fit all circumstances. As a very simple example, the format of a documentary credit issued in favour of a beneficiary where the applicant and beneficiary have a long history of trading together, should be different in substance and content than that for a new relationship. Similarly, if a beneficiary were to draft a documentary credit for its customer to provide to its bank, the likelihood is that it would be minimal in its conditions and documentary requirements than if the customer had drafted it.
Although a documentary credit can consist of two parties - an issuing bank and a beneficiary - it is more common for a bank in the country or region of the beneficiary to be used for the purpose of authentication of communication, delivery of an advice of the documentary credit and to receive a presentation for or on behalf of the beneficiary. This bank may be indicated by the beneficiary in the sale contract. In any event, this bank must be a correspondent bank of the issuing bank.
This subject is covered in far greater detail within our training module ‘documentary credits in practice' which can be purchased at https://www.tradefinance.training/shop/