Payment & trade finance UCP 600

UCP 600 (Uniform Customs and Practice for Documentary Credits)

The ICC rules in force since 2007 that govern almost every letter of credit worldwide. They set the banks’ examination period (five banking days after presentation), the standard for compliant documents, the ±10 % tolerance implied by the word “about”, a ±5 % quantity tolerance for bulk goods, and the presentation period (no later than 21 days after shipment unless stated otherwise). The eUCP supplement covers electronic presentation.

Related terms

Letter of credit (L/C) L/C

A documentary payment method in which the buyer’s bank (issuing bank) undertakes to pay the seller against timely presentation of complying documents specified in the credit – bill of lading, invoice, certificate of analysis, certificate of origin and so on. Banks deal only with documents, not goods, so the credit terms must match the sales contract exactly and be achievable. It is the most common secure payment method for large raw material deals and first-time counterparties.

L/C discrepancy

A conflict between the documents presented and the credit terms, between documents themselves, or with UCP 600 – typos, late shipment or late presentation, missing endorsement, a different description of goods, or a bill of lading that is not “clean”. With discrepant documents the bank is released from its obligation and payment depends on the buyer waiving the discrepancy, which weakens the seller’s position. Checking the draft credit before issue and pre-checking documents are the best defences.

Quantity tolerance (± %, “more or less”)

A clause in bulk and large-volume contracts accepting that the delivered quantity may deviate from the contract quantity by a set percentage, usually ±5 % or ±10 %. It states whose option the deviation is: the seller’s (MOLSO) or the shipowner’s (MOLOO). Over- or under-delivery within the tolerance is normally invoiced at the contract price, and the letter of credit must carry the same tolerance – otherwise UCP 600 allows only ±5 % for bulk goods.

Explained in the trade handbook

Trade handbook