Trade term
A letter of credit for a truck of oranges
A documentary credit is a bank's promise to pay against a compliant set of papers. Banks read paper and never taste the fruit, and every bank in the chain is allowed several banking days to decide whether the set complies. On a short haul across Europe the pallets reach your cold store well before the file clears.
The figures
| Rule set | ICC Uniform Customs and Practice for Documentary Credits, UCP 600 |
|---|---|
| What each bank examines | The documents presented, never the goods behind them |
| Time allowed to examine | Up to five banking days after presentation, for each bank |
| Refused on first presentation | Estimated by the ICC Banking Commission at between 65 and 80 per cent |
| Effect of a discrepancy | Payment stops while the fruit keeps ageing |
| Who pays for the instrument | Both parties, in bank charges set out in the credit |
What it changes on an order
Your board asks for bank security on a new origin
Security here covers the seller against non payment. It gives a buyer no protection at all against fruit that arrives in poor condition, which is the risk a fresh produce buyer actually runs.
You trade citrus on short lead times
Drafting, amending and presenting take longer than the haul itself, and every amendment costs a fee. Campaign fruit rarely waits for a second version of the credit.
Your bank mentions a discrepancy fee
ICC opinion holds that such a fee is deductible only where the credit itself states it and names the amount. Read the draft before issue, because afterwards it has become somebody else's document.
Your customer insists on this before approving a supplier
Push back with the transit time. A credit written for a container crossing an ocean behaves differently once the journey is measured in days.
What this note does not settle
- No credit has been opened, requested or discussed on our side, and this note changes none of that.
- Wording, expiry dates and required documents decide whether a credit is usable. Those belong in the draft your bank reviews.
- A compliant presentation says the paperwork matched. Condition on arrival is a separate argument, settled by inspection and not by a bank.
Source: ICC Banking Commission, Reducing discrepancy rates under documentary credits
The bank reads the file while the fruit ripens
A credit pulls apart two things a fresh produce buyer keeps joined in their head: the promise to pay and the condition of the goods. The undertaking attaches to a compliant presentation of documents. A certificate of origin with a typing error defeats it. A load of oranges arriving warm does not, because no bank in the chain looks at the load. That separation is deliberate, it is written into the rules, and it explains why a credit protects the seller and leaves the buyer's real exposure untouched.
Timing makes it worse. Each bank has its own examination window, running from the day documents are presented, and the windows run one after another rather than together. Set that against a haul from Valencia to a northern platform and the sums stop working. The pallets are already in your chill store, being graded by your own quality team, while a file waits on a desk for somebody to decide whether two dates agree.
Amendments cost more than they look
Discrepancies are clerical almost by definition: a misspelt consignee, a document dated the day after shipment, a goods description that fails to echo the credit word for word. Any of them halts payment until the file is corrected or the applicant waives the point. Each round of correction travels back through the same sequence of banks. Each amendment to the credit itself carries a fee and needs the agreement of everybody who has committed to it.
For a container of frozen concentrate that overhead is proportionate. For a truck of fresh oranges on a weekly programme it rarely is, which is why the instrument shows up in citrus mainly on new long distance origins and on volumes big enough to absorb the paperwork. Where a customer's approval form demands one as a condition of trading, the useful reply names the transit time and asks which risk the credit is meant to cover.
Talk to the grower
Tell us the variety, the sizes and the delivery week you need. You get a delivered price and what we can commit to in writing, from the person who picks the fruit.
The grower handles enquiries. Response times are still to be confirmed.