Documentary Risk in International Trade

Abstract

International trade is more risky than domestic trade. First of all international trade is effected cross borders between two different countries. Different countries have their own law, and culture, and language. Customs clearance is required in both importer’s and exporter’s countries. Main difference between domestic and international trade is customs process, specific documentation is required in clearing goods from customs between international boundaries. Documentary risk is so important that approximately 70% of documents were rejected due to non-compliance of presented documents to the required specifications of letter of credit and sales agreement. International trade is based on documentation agreed upon by seller and buyer as per sales contract and letter of credit which is mirror reflection of contract. Documentary risk is non-compliance of documents detailed in sales contract or documentary credit. Discrepant documents might result in non-payment or delay in payment. This chapter is about documentary risk, defining documentary risk and how to avoid such risks for both importer and exporter.