How Payment by Documentary Credit in International Commerce Works?

In the realm of international trade and finance, the use of letters of credit (LC) is common practice. A letter of credit provides a secure payment method for parties involved in cross-border transactions, ensuring that both the buyer and seller are protected. Given the intricate nature of LC transactions and the potential risks involved, the need for competent and experienced letter of credit lawyers in Vietnam becomes essential.

These specialized legal professionals offer valuable advice and representation, safeguarding the interests of their clients and ensuring smooth and secure international trade operations.

What is Letter of Credit (LC)

Documentary Credit (also known as letter of credit or bankers commercial credit, or letter of undertaking) is one of the payment instruments that institutions providing non-cash payment services (banks, foreign bank branches, etc.) deal with to make a valid payment transaction at the request of the account holder. Documentary credit is the most commonly used for payment of international sales of goods.

The supply of international payment services by institutions providing non-cash payment services shall be conducted in accordance with regulations of the law on foreign exchange management, treaties to which Vietnam is a member and commercial practices (including international commercial practices provided by the International Chamber of Commerce; and other commercial practices which are not contrary to the Vietnamese laws) which agreed upon by the parties.

According to UCP 600, credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation. Documentary credit is an independent and separate transaction from the sales and other contracts on which it may be based.

The Issuing Banks and Advising Banks are in no way concerned with or bound by contract between the Applicant (purchaser) and the Beneficiary (seller), even if any reference whatsoever to it is included in the credit. Banks deal with documents only. Goods, services or performance to which the documents may relate are not under scope of handling of the Banks. When the issuing bank determines that a presentation of documents is complying, payment shall be made.

LC vs Contract

The independence between the documentary credit and the sales contract ensures that the seller definitely receives payment if complying presentation, however, does not protect the interests of the purchaser when there is any dispute about the quality of the delivered goods or any other dispute after delivery. When the seller presents complying documents, the issuing bank is obliged to make payment without any doubt whether the goods have actually been delivered according to the specifications as specified in the contract. At the same time, the cancellation or termination of contract does not affect the effectiveness of documentary
credit, payment still is made if presentation is complying.

Why letter of credit lawyers in Vietnam could help?

Navigating the Complexities of Letter of Credit Transactions:

Letter of credit transactions can be complex, involving various parties, banks, and legal jurisdictions. The intricacies of these transactions require in-depth knowledge and expertise to ensure compliance with international trade rules and regulations. Letter of credit lawyers in Vietnam possess extensive experience in handling LC matters, allowing them to navigate the complexities of LC documentation, compliance, and disputes.

Advisory Services for Drafting and Negotiating LCs:

The role of letter of credit lawyers in Vietnam extends to providing expert advice during the drafting and negotiation of LC terms. These lawyers are well-versed in the intricacies of LC language and can review and advise on the terms and conditions stipulated in LC documents. They ensure that the terms align with the underlying contract and international trade regulations, minimizing the risk of disputes or non-compliance. With their expertise, letter of credit lawyers help clients negotiate favorable terms and conditions, ensuring that their interests are protected throughout the transaction process.

Dispute Resolution and Litigation:

Despite the protective nature of LCs, disputes can still arise. Letter of credit lawyers in Vietnam play a crucial role in resolving disputes related to LC transactions. They possess a deep understanding of LC laws and regulations, enabling them to identify potential issues and provide effective solutions. Whether the dispute arises from non-payment, discrepancies in documents, or other breaches of LC terms, these lawyers offer guidance, negotiation support, and representation in dispute resolution proceedings. If litigation becomes necessary, letter of credit lawyers advocate for their clients’ rights and interests, ensuring a fair resolution and seeking appropriate remedies.

Compliance with International Trade Regulations:

International trade is governed by a complex web of regulations and compliance requirements. Letter of credit lawyers in Vietnam assist clients in navigating these regulations, including international trade laws, banking regulations, and anti-money laundering provisions. By staying abreast of the latest legal developments and compliance standards, these lawyers ensure that their clients’ LC transactions adhere to all applicable regulations, minimizing the risk of legal or financial consequences.

Letter of credit lawyers in Vietnam provide indispensable services in the realm of international trade, offering expertise in LC transactions, advisory services for drafting and negotiating LC terms, dispute resolution, and ensuring compliance with international trade regulations. By engaging the services of these specialized legal professionals, businesses can confidently navigate the complexities of LC transactions, protect their interests, and ensure smooth and secure cross-border trade operations.

International payment instruments play an important role in commercial transactions between parties residing in different countries. Each payment method reflects the way of receiving and paying for goods amount between the buyer and the seller. The parties participating in international commerce transaction need to understand the characteristics of each payment instrument to protect their rights and obligations, and avoid disputes in international sales of goods, or disputes in financial service using letter of credit or other forms, disputes in performance of contract and should involve lawyers in early stage if possible to avoid mishap.

At ANT Lawyers, we help clients overcome cultural barriers and achieve their strategic and financial outcomes, while ensuring the best interest protection, risk mitigation and regulatory compliance while doing business in Vietnam. ANT lawyers, a law firm in Vietnam has attorneys in Hanoi, Ho Chi Minh and Danang.