Objective:
To equip trade finance staff with practical knowledge of International Standard Banking Practice (ISBP 745) and Incoterms, highlighting their interaction within documentary credit transactions and illustrating real-world implications through case studies.
1. Overview of ISBP 745
What is ISBP 745?
The International Standard Banking Practice (ISBP 745) is a publication by the International Chamber of Commerce (ICC) that serves as a companion to UCP 600, offering practical guidance on the examination of documents presented under Letters of Credit (LCs).
Purpose:
- To promote uniformity and clarity in document examination practices.
- To reduce discrepancies caused by inconsistent interpretation of UCP 600.
- To bridge the gap between theoretical rules and daily operational practices in banks.
Scope of ISBP 745:
- General principles of document examination.
- Specific guidance for documents such as:
- Commercial invoices
- Transport documents (Bill of Lading, Air Waybill, etc.)
- Insurance documents
- Packing lists, certificates, and inspection reports
- Topics like corrections, alterations, signatures, dates, and terminology.
2. Overview of Incoterms
What are Incoterms?
Incoterms (International Commercial Terms) are published by the ICC and define the responsibilities of buyers and sellers in international trade—particularly regarding:
- Delivery of goods
- Transfer of risk
- Allocation of costs
- Insurance obligations
Common Incoterms Examples:
- EXW (Ex Works): Buyer bears all risks and costs from seller’s premises.
- FOB (Free on Board): Seller delivers goods on board the vessel; buyer assumes risk thereafter.
- CIF (Cost, Insurance, and Freight): Seller pays for transport and insurance to the named port.
- DAP (Delivered at Place): Seller bears all costs and risks up to delivery at the agreed destination.
3. Interaction between ISBP 745 and Incoterms
Although ISBP 745 does not interpret Incoterms, it addresses how trade terms (often based on Incoterms) must be accurately reflected in documents required under an LC.
Key Points:
- If a credit states “CIF Singapore Incoterms 2020”, the invoice must:
- Include the trade term as mentioned (CIF Singapore).
- Specify the Incoterm version (e.g., Incoterms 2020).
- Match wording exactly to the LC, to avoid discrepancies.
- Discrepancies between LC terms and document content may result in refusal by the examining bank, even if the trade transaction itself is properly executed.
4. Case Studies
Case Study 1: Discrepancy in Trade Term on Invoice
Scenario:
The LC requires: “FOB Mumbai Incoterms 2020”.
The beneficiary’s invoice mentions: “FOB Mumbai”, omitting “Incoterms 2020”.
Issue:
The omission of the Incoterm version constitutes a discrepancy.
Resolution (as per ISBP 745):
Banks are expected to ensure that invoices reflect the exact wording of trade terms as stated in the LC. The issuing bank may refuse documents due to this inconsistency.
Case Study 2: Description of Goods Differs Slightly
Scenario:
LC requires: “Blue cotton shirts, 100% cotton, size L, packed in boxes of 20”.
Invoice states: “Cotton shirts, blue, size L, in cartons”.
Issue:
Discrepancy in description of goods and packaging terminology.
Resolution:
ISBP 745 stipulates that invoices must not conflict with the description in the LC. Even minor variations in language (e.g., “cartons” vs. “boxes”) can lead to rejection, unless the credit allows flexibility.
Case Study 3: Transport Document Date Discrepancy
Scenario:
LC stipulates a latest shipment date of 31 July 2025.
The Bill of Lading is dated 1 August 2025.
Issue:
The document is outside the permitted shipment window.
Resolution:
Under ISBP 745, this is a clear discrepancy. Banks must reject the presentation unless a waiver is obtained from the applicant.
Case Study 4: Missing Signature on Certificate of Origin
Scenario:
The LC requires a signed Certificate of Origin. The document submitted is stamped but not signed.
Issue:
Non-compliance with the signature requirement.
Resolution:
As per ISBP 745, if a signature is required, its absence constitutes a discrepancy. The presentation will be considered non-compliant.
5. Key Takeaways for Bank Staff
- Always verify that documents exactly match the terms stated in the LC.
- Incoterms must be reflected accurately and fully on invoices and transport documents.
- Minor wording differences can have major consequences under documentary credit rules.
- Use ISBP 745 as a practical checklist to guide document examination.
- Encourage applicants and beneficiaries to align their contracts, LCs, and documentation formats early in the process.
Conclusion
Understanding the practical application of ISBP 745 and the correct use of Incoterms is critical to minimizing document-related discrepancies in LC transactions. By studying real-world cases, bank staff can strengthen their document scrutiny skills, support trade clients more effectively, and mitigate operational risk in international trade finance.
Related Posts:
