Articles Mr Old Man Payment Q&A Documentary Credits: Safe… but not as certain as we think By Mr Old Man Posted on 1 day ago 6 min read 0 0 13 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr This article is inspired by “Documentary credits and the illusion of certainty – resolving the real problem” by David Meynell. □ We tend to think of letters of credit as a “safe” method of payment. As long as documents comply with the terms of the credit and UCP 600, payment should follow. Banks examine documents, not goods. They do not concern themselves with the underlying contract. It all sounds logical. And that logic is exactly why documentary credits have remained a preferred instrument in international trade for decades — especially for high-value transactions or when dealing with unfamiliar counterparties. □ But in practice… things are not always that straightforward In theory, the condition for payment is simple: Documents must comply. In reality, “compliance” is not always interpreted the same way. There are cases where: One bank finds the documents compliant Another bank raises discrepancies Or situations where: A clause appears clear when drafted But becomes open to interpretation when applied The rules are there. But the outcomes are not always aligned. What seems certain in theory can feel less certain in practice. □ LCs are not a checklist exercise Document examination is not a mechanical process of ticking boxes. Terms frequently used in practice such as: “appear on their face” “not inconsistent with” “international standard banking practice” do not provide fixed answers. They define boundaries — not conclusions. What follows is judgement. □ Very familiar situations A bill of lading contains all required data, but is presented in a slightly different format — is it acceptable? An insurance document includes additional wording — does it create a conflict? A certificate is issued by a party that does not perfectly match the description in the credit — is it still valid? These are not unusual cases. And they rarely lead to a simple yes-or-no answer. They require an overall assessment. □ So where does the “certainty” of LCs really lie? This is where misunderstandings often arise. Documentary credits do not guarantee identical outcomes. What they provide is something else: A shared framework. A common approach to examining documents A common language for identifying discrepancies A set of principles guiding decision-making But the final outcome may still differ, because interpretation remains involved. □ Why do revisions of ICC rules never eliminate uncertainty? Because they cannot. Trade is too diverse. Documentation is too varied. The more we try to define every possible scenario, the more complexity — and sometimes new ambiguity — is introduced. Absolute precision is simply not achievable in this context. □ Digitalisation: useful, but often misunderstood There is a common expectation: Put LCs into systems, automate checks, and eliminate disputes. In reality, it is not that simple. If the rules themselves require interpretation, no system can completely remove it. Technology does not eliminate judgement. □ Where digitalisation really adds value Its strength lies elsewhere: Making decision-making more transparent Recording the reasoning behind acceptance or rejection Allowing comparisons across cases In other words: It transforms individual experience into shared institutional knowledge. □ A practical takeaway Documentary credits can be “safe”. But they have never been risk-free. Compliance leads to payment — in principle. But whether documents are considered compliant may still depend on how they are interpreted. If we expect LCs to produce a single, automatic answer, we will eventually be frustrated. But if we understand that: LCs ensure everyone plays by the same rules While outcomes still depend on professional judgement then the system becomes much easier to navigate. □ A question for practitioners Have you ever encountered a case where two banks reviewed the same set of documents — and reached different conclusions? Curious to hear how others handle such cases in practice.