UCP 600

What is the International Chamber of Commerce (ICC), and how does it regulate trade finance? | UCP 600, Documentary Collections, and Global Trade Rules for SMEs

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Table of Contents

  1. Introduction: The Role of ICC in Global Trade
  2. What is the International Chamber of Commerce (ICC)?
  3. ICC Rules for Letters of Credit (UCP 600)
  4. How Does the ICC Support International Arbitration in Trade Disputes?
  5. The Role of ICC in Drafting INCOTERMS
  6. How Does the ICC Ensure Uniformity in Trade Finance Practices?
  7. ICC Guidelines for Documentary Collections
  8. How Does ICC Promote Trade Standards and Regulations Globally?
  9. Common FAQs about ICC Trade Finance
  10. Conclusion

1. Introduction: The Role of ICC in Global Trade

Have you ever wondered how businesses across the world, from small enterprises to large corporations, ensure that they get paid for international trade? Or how banks and financial institutions manage risk and facilitate payments in global commerce? The answer lies in the International Chamber of Commerce (ICC).

For over a century, the ICC has played a pivotal role in regulating trade finance, establishing globally recognized rules, and providing services that ensure consistency, fairness, and security in cross-border transactions. From letters of credit to arbitration in trade disputes, the ICC’s contributions have shaped international trade law and practice.

But what exactly is the ICC, and how does it influence trade finance? Let’s dive deeper into the world of the ICC and explore its regulations, guidelines, and services that govern global commerce today.

2. What is the International Chamber of Commerce (ICC)?

The International Chamber of Commerce (ICC) is a global organization founded in 1919 to promote and support international trade. It aims to facilitate free trade and provide businesses with a platform to ensure smooth cross-border transactions. Headquartered in Paris, France, the ICC has been instrumental in establishing widely adopted international trade rules that standardize and simplify global trade practices.

With over 45 million companies from over 100 countries as members, the ICC serves as a vital force in promoting global commerce by offering legal and regulatory frameworks for businesses, governments, and trade professionals. But why is the ICC so important to businesses involved in international trade?

For example, consider a small business in India exporting handmade textiles to the United States. Without the ICC’s regulations, such as those in the Uniform Customs and Practice for Documentary Credits (UCP 600), navigating payment security, contracts, and dispute resolution would be far more complex. The ICC’s work helps mitigate risks, improve efficiency, and ensure that businesses, regardless of their size, can trade with confidence.

3. ICC Rules for Letters of Credit (UCP 600)

One of the most significant contributions of the ICC to trade finance is the creation of the UCP 600 (Uniform Customs and Practice for Documentary Credits). But what exactly does UCP 600 entail, and how does it help businesses involved in international trade?

UCP 600 is a set of internationally recognized rules for letters of credit, a popular payment method used in international trade to mitigate the risk of non-payment. These rules provide guidelines for how banks should handle letters of credit, ensuring that both buyers and sellers are protected. The rules cover various aspects of a letter of credit transaction, including documents required, the role of banks, and dispute resolution mechanisms.

For instance, if an exporter in China sends goods to a buyer in Brazil and they use a letter of credit as payment security, the UCP 600 ensures that the buyer’s bank will only release funds once the correct documents, such as the shipping bill and invoice, are presented. This minimizes the risk for the exporter and provides assurance that the payment will be processed according to the agreed terms.

The UCP 600 is essential for businesses that want to secure payments and minimize risks in trade, especially in large transactions where trust and security are crucial. For small businesses and SMEs, adhering to these ICC rules ensures that they can engage in global trade with fewer complications and lower risks.

4. How Does the ICC Support International Arbitration in Trade Disputes?

Disputes in international trade can be complex and challenging to resolve, especially when the parties involved are from different countries with distinct legal systems. So, how does the ICC provide solutions to these issues? The answer lies in the ICC’s expertise in international arbitration.

The ICC’s International Court of Arbitration is one of the world’s leading institutions for resolving trade disputes. When parties involved in international trade face disagreements, they can turn to the ICC for arbitration. This process allows both parties to resolve their disputes without going through lengthy court procedures, which can be expensive and time-consuming. Instead, they agree to have their dispute resolved by a neutral third party (an arbitrator), and the ICC ensures that the arbitration process follows established global standards.

Consider the case of a German supplier and a South African distributor who have a dispute over the terms of an export contract. Instead of going to court, they opt for ICC arbitration, where the decision of the arbitrator is legally binding. This saves time, costs, and ensures that both parties adhere to a neutral process guided by ICC regulations.

The ICC’s support of international arbitration in trade disputes provides businesses with a transparent, effective, and efficient way to resolve conflicts, fostering trust and stability in global trade.

5. The Role of ICC in Drafting INCOTERMS

What happens when businesses agree on the sale of goods across international borders, but they disagree on the terms of delivery? This is where INCOTERMS come into play. But who decides these terms, and how do they affect international trade?

INCOTERMS, or International Commercial Terms, are a set of standardized trade terms that define the responsibilities of buyers and sellers in international transactions. These terms, created by the ICC, establish who is responsible for costs, risks, and duties associated with the transportation and delivery of goods. For example, terms like “FOB” (Free on Board) or “CIF” (Cost, Insurance, and Freight) outline whether the buyer or the seller will bear responsibility for insurance, shipping costs, and customs duties.

INCOTERMS simplify global trade by providing clear, universally accepted guidelines. Whether you’re an exporter in Vietnam or an importer in Canada, these terms ensure that all parties are on the same page regarding the delivery of goods. By following these ICC guidelines, businesses can avoid costly misunderstandings and disputes related to shipment and delivery responsibilities.

6. How Does the ICC Ensure Uniformity in Trade Finance Practices?

Trade finance practices can vary significantly from country to country, and this can create confusion and inefficiency for businesses engaged in international trade. But how does the ICC ensure that these practices remain consistent across borders?

The ICC ensures uniformity in trade finance through its well-established set of global trade rules and regulations, such as the UCP 600, INCOTERMS, and guidelines for documentary collections. By providing these standard rules, the ICC allows businesses from different parts of the world to trade with the assurance that the same procedures, definitions, and standards apply to everyone.

For instance, when a buyer in India imports goods from a supplier in Spain, both parties can rely on the same guidelines for documentary collections. These uniform trade practices reduce confusion, simplify transactions, and improve the efficiency of global trade.

7. ICC Guidelines for Documentary Collections

Documentary collections are a common method of payment in international trade where the exporter’s bank acts as an intermediary between the buyer and the seller. But how does the ICC regulate this process to ensure fairness?

The ICC provides clear guidelines for documentary collections, outlining the responsibilities of the banks involved and ensuring that both the buyer and seller are protected. The guidelines specify the documentation required for the collection process, such as shipping bills, invoices, and insurance certificates, and detail the procedures for releasing the documents to the buyer.

By following these ICC regulations, businesses can reduce the risks associated with non-payment, fraud, and delays in international transactions. Documentary collections, when conducted under ICC guidelines, provide a reliable payment method for exporters and importers alike, especially when a letter of credit is not required.

8. How Does ICC Promote Trade Standards and Regulations Globally?

The ICC’s influence extends beyond individual rules and regulations; it also plays a crucial role in shaping global trade standards. The organization continuously collaborates with national governments, international institutions, and businesses to develop trade practices that ensure fairness and transparency in the global marketplace.

Through initiatives like the ICC’s Trade Facilitation initiative, the organization helps promote global trade by advocating for simplified customs procedures, clearer regulations, and the reduction of trade barriers. For example, the ICC supports SMEs (small and medium-sized enterprises) by providing export guidelines that make it easier for these businesses to enter international markets, comply with regulations, and navigate the complexities of global trade.

9. Common FAQs about ICC Trade Finance

1. What is the ICC’s role in trade finance?
The ICC sets global standards, including rules for letters of credit (UCP 600), INCOTERMS, and documentary collections, to ensure smooth and secure international trade transactions.

2. How does ICC support businesses in international trade?
By providing trade rules, guidelines for payment methods, and facilitating dispute resolution through arbitration, the ICC helps businesses reduce risks and uncertainties in global trade.

3. What is UCP 600?
UCP 600 is a set of rules for letters of credit issued by the ICC, providing standardized procedures for the handling of documentary credits in international trade.

4. How does ICC arbitration work?
ICC arbitration is a process where a neutral third party resolves disputes between businesses involved in international trade, offering an alternative to lengthy and costly court proceedings.

5. What are INCOTERMS?
INCOTERMS are standard international trade terms created by the ICC that define the responsibilities of buyers and sellers in global transactions.

6. What are documentary collections?
Documentary collections are a payment method where banks act as intermediaries, ensuring that documents related to goods are exchanged for payment in international trade.

7. How does ICC ensure trade uniformity?
Through standardized rules like UCP 600 and INCOTERMS, the ICC ensures that businesses worldwide follow the same procedures and practices, promoting consistency in trade finance.

8. Can SMEs benefit from ICC trade finance rules?
Yes, the ICC provides guidelines and support that help SMEs engage in global trade by simplifying complex processes like payments, documentation, and dispute resolution.

9. How does ICC ensure compliance with trade finance regulations?
ICC compliance is ensured by businesses following its established rules, which are widely recognized and followed globally.

10. What is the ICC’s role in global trade dispute resolution?
Through its International Court of Arbitration, the ICC resolves trade disputes, offering an alternative to national courts.

11. How do ICC rules affect global trade standards?
ICC rules set internationally recognized benchmarks for global trade practices, ensuring that businesses follow best practices and maintain fair, transparent trade operations.

12. What are the benefits of ICC trade finance for international businesses?
ICC trade finance regulations reduce risk, ensure secure transactions, and simplify trade processes, making international business more efficient and predictable.

13. Can ICC rules be modified?
While ICC rules are regularly reviewed and updated to meet the evolving needs of global trade, they are generally regarded as permanent, ensuring consistency in international trade.

14. How does ICC influence global trade policy?
Through its advocacy, research, and collaboration with governments and trade bodies, the ICC influences trade policies that promote free and fair global trade.

15. Why are ICC guidelines important for international trade?
ICC guidelines provide clear, standardized rules that reduce uncertainty, improve efficiency, and ensure that global trade transactions are secure and equitable for all parties.

10. Conclusion

The ICC’s contributions to trade finance have revolutionized the way businesses engage in international trade. From UCP 600 and INCOTERMS to arbitration and documentary collections, the ICC provides the tools and regulations that help businesses navigate the complexities of global commerce. As international trade continues to grow, the ICC’s role in ensuring security, fairness, and efficiency will remain critical for businesses of all sizes, including SMEs looking to expand their reach.

By adhering to ICC rules and guidelines, businesses can safeguard themselves against risks, reduce disputes, and make the most of the opportunities available in the global marketplace. Whether you’re an exporter in Asia, a buyer in Europe, or a financial institution in Africa, the ICC’s framework for trade finance ensures that your international transactions are handled smoothly and securely.

eUCP Version 2 Article e1: Scope and Application Explained – CDCS Guide

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Article e1: Scope of the Uniform Customs and Practice for Documentary Credits (UCP 600) Supplement for Electronic Presentations (“eUCP”)

a. “The eUCP supplements the Uniform Customs and Practice for Documentary Credits (2007 Revision, ICC Publication No. 600) (“UCP”) in order to accommodate presentation of electronic records alone or in combination with paper documents.”

Explanation:
This clause establishes that the eUCP is an addition to the existing rules outlined in UCP 600. It is designed to handle situations where electronic records are presented either by themselves or together with physical documents. Essentially, it extends the traditional UCP 600 framework to cover electronic documentation.

Example:
Suppose a documentary credit traditionally required paper documents for presentation. Under eUCP, a company could now present its shipping documents electronically via a secure online platform, as long as the credit allows for electronic submissions in conjunction with or instead of paper documents.

b. “The eUCP shall apply where the credit indicates that it is subject to the eUCP (“eUCP credit”).”

Explanation:
This clause specifies that the eUCP rules will be applicable only if the credit explicitly states that it is governed by the eUCP. This means that the use of eUCP is not automatic; it must be clearly indicated in the credit terms.

Example:
If a letter of credit (LC) includes a statement such as “Subject to eUCP Version 2.1,” then the provisions of eUCP apply. Without this indication, the presentation of electronic records would not be governed by eUCP.

c. “This version is Version 2.1. An eUCP credit must indicate the applicable version of the eUCP. If not indicated, it is subject to the latest version in effect on the date the eUCP credit is issued or, if made subject to the eUCP by an amendment accepted by the beneficiary, the date of that amendment.”

Explanation:
This clause addresses the specific version of eUCP that applies to the credit. If the version is not stated, the latest version at the time of issuance or amendment will apply. This ensures that all parties are aware of which rules govern the credit, avoiding confusion about which version of eUCP applies.

Example:
If an LC does not state “eUCP Version 2.1” but was issued on January 1, 2024, it would be governed by the latest eUCP version available as of that date. If an amendment indicating eUCP Version 2.1 was accepted on February 1, 2024, then Version 2.1 applies to the credit.

d. “An eUCP credit must indicate the physical location of the issuing bank. In addition, it must also indicate the physical location of any nominated bank and, if different to the nominated bank, the physical location of the confirming bank, if any, when such location is known to the issuing bank at the time of issuance. If the physical location of any nominated bank and/or confirming bank is not indicated in the credit, such bank must indicate its physical location to the beneficiary no later than the time of advising or confirming the credit or, in the case of a credit available with any bank, and where another bank willing to act on the nomination to honour or negotiate is not the advising or confirming bank, at the time of agreeing to act on its nomination.”

Explanation:
This clause requires that an eUCP credit specifies the physical locations of the issuing bank, nominated bank, and confirming bank. If the credit does not include these locations, the banks involved must provide this information to the beneficiary by certain deadlines. This requirement ensures transparency and clarity regarding the locations of the involved parties.

Example:
If an LC issued under eUCP does not state the location of the issuing bank, the issuing bank must inform the beneficiary of its location when advising or confirming the credit. Similarly, if the nominated bank or confirming bank’s locations are not mentioned in the credit, these banks must provide their locations to the beneficiary as soon as they confirm or advise the credit.

UCP600 Article 1 Explanation – CDCS Guide: Application of Rules and Their Binding Nature

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Article 1: Application of UCP

Clause 1: “The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600 (‘UCP’) are rules that apply to any documentary credit (‘credit’) (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules.”

Explanation: This clause establishes that UCP600 rules are applicable to any documentary credit, including standby letters of credit, provided that the text of the credit explicitly states that it is subject to these rules. UCP600 is not automatically applied; it must be expressly mentioned in the credit’s text. This clause ensures that all parties involved in the credit are aware that the rules of UCP600 govern the transaction.

Example: Consider a buyer in India who requests a documentary credit from their bank to pay a seller in Germany for goods. If the credit document explicitly states, “This credit is subject to UCP600,” then all the rules and regulations under UCP600 will apply to the transaction. Both the buyer’s and seller’s banks, along with the parties themselves, are bound by these rules. It can also be stated like “This credit is subject to UCP LATEST VERSION” or “This credit is subject to UCPDC,” etc.

Clause 2: “They are binding on all parties thereto unless expressly modified or excluded by the credit.”

Explanation: This clause emphasizes that UCP600 rules are mandatory for all parties involved in the documentary credit, including the issuing bank, the advising bank, the beneficiary, and the applicant, unless the credit specifically modifies or excludes certain rules. This means that the parties cannot opt out of the UCP600 rules unless they have expressly stated any modifications or exclusions in the credit itself.

Example: In the same transaction between the Indian buyer and the German seller, if the credit document states, “This credit is subject to UCP600, except for Article 16,” then all the rules of UCP600 will apply except Article 16. The parties have the flexibility to modify or exclude certain parts of UCP600, but such modifications must be explicitly stated in the credit.

Standby Letters of Credit (SBLC): Definition, Types, Process, Costs, and International Guidelines

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Standby Letters of Credit (SBLC) are essential financial instruments used globally to mitigate risk and provide assurance in various business transactions. This blog post aims to provide an in-depth understanding of SBLCs by exploring their definition, types, process, costs, uses, benefits, and relevant international guidelines. Whether you are a business owner, financial professional, or student, this guide will equip you with the necessary knowledge to understand and utilize SBLCs effectively.

Definition of Standby Letters of Credit (SBLC)

A Standby Letter of Credit (SBLC) is a guarantee issued by a bank or financial institution that ensures payment to the beneficiary if the applicant fails to fulfill their contractual obligations. Unlike Documentary Letters of Credit (DLC), which are used for direct payment, SBLCs act as a safety net, only becoming active when the applicant defaults. This financial instrument is widely used in international trade, construction projects, real estate transactions, and loan guarantees.

Types of Standby Letters of Credit

Understanding the different types of SBLCs is crucial for selecting the appropriate one for your needs. The primary types include:

  1. Performance SBLC: Guarantees the completion of a project or service according to the contract. Commonly used in construction and engineering projects, it assures the beneficiary that the project will be completed as specified.
  2. Financial SBLC: Ensures payment for financial transactions. This type is often used in international trade to guarantee payment to exporters.
  3. Direct Pay SBLC: Used primarily in bond financing, this SBLC ensures that the beneficiary receives payment directly from the bank if the applicant fails to pay.
  4. Insurance SBLC: Provides a guarantee that a specific obligation, such as insurance premium payments, will be met.
  5. Lease Support SBLC: Guarantees lease payments, providing security to landlords and lessors.

The SBLC Process

The process of obtaining and utilizing an SBLC involves several key steps:

  1. Application: The applicant approaches their bank with a request for an SBLC, providing details about the transaction and the required guarantee.
  2. Credit Evaluation: The bank conducts a thorough credit assessment of the applicant, reviewing financial statements, credit history, and the applicant’s ability to fulfill the terms of the SBLC.
  3. Issuance: Once approved, the bank issues the SBLC using a SWIFT MT760 message. This message format is standard for issuing guarantees and letters of credit.
  4. Notification to Beneficiary: The beneficiary is notified of the SBLC issuance, providing them with the assurance they need to proceed with the transaction.
  5. Presentation of Documents: In case of default, the beneficiary presents the required documents to the bank to claim payment.
  6. Payment: Upon verification of the documents, the bank makes the payment to the beneficiary, ensuring that the contractual obligations are met.

Costs Associated with SBLC

Several fees are associated with the issuance and maintenance of an SBLC:

  1. Issuance Fee: Charged by the issuing bank for the initial creation of the SBLC.
  2. Annual Fee: An ongoing fee paid annually for the duration the SBLC remains valid.
  3. Confirmation Fee: Applied if a confirming bank is involved in the SBLC process.
  4. Amendment Fee: Charged for any modifications or amendments to the terms of the SBLC.
  5. Presentation Fee: Applied when the beneficiary submits documents to claim payment.
  6. Advising Fee: Charged by the advising bank for providing notifications related to the SBLC.
  7. Negotiation Fee: Applicable if the beneficiary negotiates the SBLC with the bank.
  8. Cancellation Fee: Charged if the SBLC is canceled before its expiration date.

Uses of Standby Letters of Credit

SBLCs are versatile financial instruments used in various industries and transactions:

  1. International Trade: SBLCs provide a safety net for exporters, ensuring they receive payment even if the importer defaults. This reduces the risk associated with cross-border transactions.
  2. Construction Projects: Contractors and subcontractors use SBLCs to guarantee payment for their services or materials, providing assurance to project owners.
  3. Real Estate Transactions: Buyers provide SBLCs to sellers as a guarantee of payment, facilitating smoother transactions.
  4. Loan Guarantees: SBLCs act as collateral for loans, especially for borrowers with weaker credit ratings. This provides lenders with the confidence needed to approve the loan.

Benefits of Standby Letters of Credit

The advantages of using SBLCs are numerous:

  1. Risk Mitigation: SBLCs reduce the risk of non-performance or default, providing assurance to beneficiaries that they will receive payment.
  2. Enhanced Credibility: Businesses using SBLCs demonstrate financial stability and reliability, enhancing their credibility with partners.
  3. Flexibility: SBLCs can be tailored to suit various transactions, making them a versatile financial tool.
  4. Facilitates International Trade: SBLCs help businesses engage in international trade by providing a secure payment method, fostering global business relationships.

SBLC vs. Documentary Letter of Credit (DLC)

While both SBLCs and DLCs are used to guarantee payment, they serve different purposes:

  • DLC: Used for direct payment in trade transactions, requiring the presentation of specified documents to the issuing bank.
  • SBLC: Acts as a backup guarantee, only activated in case of default by the applicant.

Parties Involved in SBLC Transactions

Several key parties are involved in SBLC transactions:

  1. Applicant: The party requesting the SBLC, usually the buyer or contractor.
  2. Beneficiary: The party receiving the guarantee, usually the seller or project owner.
  3. Issuing Bank: The bank issuing the SBLC on behalf of the applicant.
  4. Advising Bank: The bank advising the beneficiary about the SBLC.
  5. Confirming Bank: A bank that confirms the SBLC, adding its guarantee to that of the issuing bank.

Documentation for SBLC

The documents required for an SBLC include:

  1. Pro Forma Invoice: A preliminary invoice outlining the transaction details.
  2. Sales Contract: The agreement between the buyer and seller.
  3. SWIFT MT760 Message: The standardized format for issuing SBLCs.
  4. Shipping Documents: Required for trade transactions, such as bills of lading and certificates of origin.

International Guidelines for SBLC

SBLCs are governed by a set of international guidelines to ensure uniformity and reliability. The key guidelines include:

  1. Uniform Customs and Practice for Documentary Credits (UCP 600): Established by the International Chamber of Commerce (ICC), UCP 600 provides a comprehensive set of rules for documentary credits, including SBLCs.
  2. International Standby Practices (ISP98): Also established by the ICC, ISP98 offers a standardized framework specifically for SBLCs, detailing the procedures and responsibilities of the parties involved.
  3. Uniform Rules for Demand Guarantees (URDG 758): These rules govern the issuance and use of demand guarantees, including SBLCs, providing clarity and consistency in international transactions.

Practical Example of a Standby Letter of Credit (SBLC)

ABC Corp., a U.S.-based company, has secured a contract to purchase $1 million worth of electronics from XYZ Ltd., a supplier in China. Given the substantial value of the transaction and the geographic distance, both parties seek to mitigate risk. XYZ Ltd. wants assurance that it will be paid if ABC Corp. defaults, while ABC Corp. wants to avoid paying upfront before receiving the goods.

Step-by-Step Process

  1. Negotiation and Agreement
    • ABC Corp. and XYZ Ltd. negotiate the terms of their contract, including the use of a Standby Letter of Credit (SBLC) to guarantee payment.
    • The contract specifies that ABC Corp. will apply for an SBLC through its bank to cover the $1 million purchase price.
  2. Application for SBLC
    • ABC Corp. approaches its bank, Bank A, to request an SBLC.
    • ABC Corp. submits necessary documentation, including the sales contract, pro forma invoice, and other relevant details.
    • Bank A conducts a credit evaluation of ABC Corp. to assess its ability to fulfill the SBLC requirements.
  3. Issuance of SBLC
    • Upon approval, Bank A issues the SBLC via a SWIFT MT760 message to XYZ Ltd.’s bank, Bank B.
    • The SBLC guarantees that Bank A will pay XYZ Ltd. up to $1 million if ABC Corp. defaults on the contract.
    • Bank A charges ABC Corp. an issuance fee and an annual fee for the SBLC.
  4. Notification and Confirmation
    • Bank B notifies XYZ Ltd. of the SBLC issuance.
    • XYZ Ltd. can now proceed with the shipment, knowing it has a payment guarantee.
    • If needed, Bank B can confirm the SBLC, adding its guarantee, for an additional fee.
  5. Shipment and Document Presentation
    • XYZ Ltd. ships the electronics to ABC Corp. and prepares the required shipping documents.
    • The documents, including the bill of lading, commercial invoice, and packing list, are submitted to Bank B.
  6. Claim and Payment
    • In case ABC Corp. fails to pay upon receiving the goods, XYZ Ltd. presents the required documents to Bank B.
    • Bank B forwards these documents to Bank A to claim payment under the SBLC.
    • Bank A verifies the documents and releases the payment to XYZ Ltd., ensuring XYZ Ltd. is compensated for the shipment.
  7. Settlement
    • Bank A settles the payment with Bank B.
    • If ABC Corp. does not default, it makes the payment directly to XYZ Ltd., and the SBLC is not utilized.

Key Benefits

  • For XYZ Ltd.: The SBLC provides a safety net, ensuring payment even if ABC Corp. defaults, thus reducing the risk of non-payment.
  • For ABC Corp.: The SBLC allows the company to avoid upfront payment and build trust with XYZ Ltd., facilitating smoother international trade.

By adhering to these guidelines, banks and businesses can ensure that their SBLC transactions are conducted smoothly and securely, reducing the risk of disputes and enhancing trust between parties.

You can also watch below explanation video in Youtube-