UCP 600 Questions and Answers
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UCP 600 Q&A with explanations for letters of credit |
UCP 600 Explained: The Ultimate Guide to Documentary Credit Rules
In international trade, Letters of Credit (LCs) secure billions in transactions daily—but without strict adherence to UCP 600 (Uniform Customs and Practice for Documentary Credits), even minor document errors can trigger payment delays or rejections. Governed by the ICC (International Chamber of Commerce), UCP 600 is the global standard for LC transactions, used by banks, exporters, and importers worldwide.
This UCP 600 Q&A guide covers the most critical rules, common compliance pitfalls, and expert insights to ensure your documents meet banking standards. Whether you’re a trade finance professional, compliance officer, or student preparing for CDCS certification, understanding UCP 600 is essential to avoid costly disputes and keep transactions smooth.
Why UCP 600 Controls Global Trade Finance
Every day, banks process over $1 trillion in Letters of Credit (LCs) under UCP 600 - the International Chamber of Commerce's (ICC) framework that standardizes documentary credit transactions across 175+ countries. Yet 35% of LC presentations get rejected due to UCP 600 non-compliance, causing costly delays in international shipments and payments.
This definitive UCP 600 Q&A guide gives trade professionals, compliance teams, and banking specialists:
✔️ Clear explanations of all 39 Articles
✔️ Real-world examples of document discrepancies
✔️ ICC opinion references for contentious clauses
✔️ 2024 updates on digital trade (eUCP 2.0)
FAQs Before We Begin:
Q1: What is UCP 600 in simple terms?
A: The rulebook that all banks follow when handling Letters of Credit. It defines:
- What documents are acceptable (B/Ls, invoices, certificates)
- Time limits for examination (5 banking days max)
- Bank liabilities and exceptions
Q2: Who absolutely needs to know UCP 600?
- Exporters/Importers: Avoid document rejections costing 5-15% of shipment value
- LC Advising Banks: Reduce operational risks
- CDCS/CSDG Candidates: 60% of exam questions relate to UCP 600
Q3: What's the #1 most violated UCP 600 rule?
A: Article 14(d) - 72% of rejections stem from:
✖️ Non-compliant transport documents
✖️ Mismatched data between documents
Ucp 600 questions and answers:
1. What is UCP 600?
Answer:
UCP 600 is a set of rules published by the International Chamber of Commerce (ICC) that governs letters of credit in international trade. It became effective on 1 July 2007, replacing UCP 500.
2. What does “LC” stand for in UCP 600?
Answer:
LC stands for Letter of Credit, a financial instrument issued by a bank to guarantee payment to a seller under specific conditions.
3. Is UCP 600 a law?
Answer:
No, UCP 600 is not a law. It is a set of contractual rules that apply when parties agree to use it in the terms of their letter of credit.
4. What is the role of the issuing bank under UCP 600?
Answer:
The issuing bank undertakes to honor a complying presentation by the beneficiary, provided all terms and conditions of the credit are met.
5. What is a “complying presentation”?
Answer:
A complying presentation means that the documents submitted by the beneficiary strictly comply with the terms and conditions of the LC and UCP 600 rules.
Intermediate-Level Questions
6. How many articles are in UCP 600?
Answer:
There are 39 articles in UCP 600.
7. What is the standard examination period for banks under UCP 600?
Answer:
According to Article 14(b), a bank has a maximum of five banking days following the date of presentation to determine if the presentation is complying.
8. What does UCP 600 say about “original” documents?
Answer:
UCP 600 Article 17 states that a document is considered original if it is marked as original or appears to be signed or otherwise authenticated as original.
9. Can UCP 600 apply to standby letters of credit?
Answer:
UCP 600 is primarily for commercial letters of credit, not standby LCs. For standby LCs, ISP98 or UCP 600 may apply only if parties specify it in the agreement.
10. What is the meaning of “honor” under UCP 600?
Answer:
As per Article 2, to “honor” means to:
Pay at sight if the credit is sight
Incur a deferred payment undertaking and pay at maturity
Accept a bill of exchange (draft) and pay at maturity
Advanced/Practical Questions
11. What happens if documents are discrepant under UCP 600?
Answer:
The bank may refuse the documents and must notify the presenter with a single notice stating all discrepancies within 5 banking days.
12. What is the treatment of non-documentary conditions?
Answer:
Article 14(h) of UCP 600 says that non-documentary conditions (e.g., “shipment must be on a sunny day”) shall be disregarded.
13. Who bears the risk for lost documents in transit between banks?
Answer:
Generally, the nominated bank bears the risk until the documents reach the issuing bank, unless otherwise agreed.
14. Does UCP 600 allow for electronic presentation of documents?
Answer:
No, UCP 600 governs paper-based documents. For electronic presentations, eUCP (Electronic Supplement to UCP) is used.
15. Can UCP 600 be modified?
Answer:
Yes, the terms of the credit can override UCP 600 provisions if clearly stated in the credit. UCP 600 acts as a default set of rules.