Trade documents have existed ever since the written word was first introduced, and ‘documents' in the form of clay tablets have been recovered that date back many thousands of years.
Without documents, there is no documentary credit, meaning that a beneficiary does not get paid and an applicant may not get its goods. All parties involved in the trade cycle have a need for documentation, albeit with differing requirements. Each type of document serves a different purpose.
There are in existence a myriad of document types, and it is important that there is an understanding of the intent of the documents that have been called for under a documentary credit. Most countries around the world have a minimum requirement for import and export documentation, and many have numerous specific and special requirements, but these should have been accounted for in the terms and conditions of the documentary credit.
Poorly prepared documents can have a severe impact on a transaction, leading (at best) to delays in settlement. Global statistics differ, but it appears that the percentage of documents refused by banks on first presentation ranges between 65% and 80%.
Whilst a number of the more common discrepancies are due to timing issues (expiry, shipment and presentation period), quite a number of them derive from poorly prepared documents or presentations, including: conflicting data between documents; missing documents; unauthenticated alterations; missing endorsements; goods description not according to the documentary credit; port or place of loading, departure, receipt, taking in charge, or, port or place of discharge, destination or delivery are incorrect; insurance document dated later than the transport document; missing or incorrect shipped on board notations.
In order to ensure compliance with the terms and conditions of a documentary credit, it is worthwhile creating a checklist that provides guidelines on the basic requirements for the more common documents.
Compiling an all-inclusive checklist covering every possible documentary requirement is not feasible. However, it is possible to provide a generic one covering the common documents that may be presented under a documentary credit and the information that should be included within each document.
Staff who prepare documents should still carry out a full review of those documents prior to their presentation under a documentary credit.
Within our training modules are suggested checklists for the more common documents. These highlight the requirements for the respective fields on these documents and make reference to the source for further information or guidance. For each document there is also a short summary checklist.
Individual training modules for each type of document are available at www.tradefinance.training