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Understanding MT 700: The Documentary Credit Message
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Contents
Understanding MT 700: The Documentary Credit Message
The MT 700 is a crucial message type in international trade finance, transmitted via SWIFT (Society for Worldwide Interbank Financial Telecommunication) to convey the terms and conditions of a documentary credit. This page breaks down the MT 700 format, highlighting its structure, network-validated rules, and usage guidelines to provide a comprehensive overview.
Who uses MT 700 and why?
The users of MT 700
The MT 700 message is extensively used by banks and financial institutions engaged in international trade finance. Specifically, it is issued by the originating bank, which opens the documentary credit on behalf of the applicant (typically a buyer or importer) and is sent to the advising bank, usually located in the beneficiary’s (the seller or exporter) country. This critical financial document plays a vital role in facilitating secure and efficient transactions across borders, ensuring that all parties involved adhere to any agreed-upon terms and conditions.
SOURCE: SWIFT
Reasons for using MT 700
The primary reason for using an MT 700 is to provide a secure and standardised method for communicating the details of a documentary credit. This SWIFT message type guarantees that the terms of the credit are clearly understood and agreed upon by all parties, thereby minimising the risk of disputes and misunderstandings.
It is an essential tool for mitigating risks in international trade, as it assures the seller of receiving payment under the specified conditions, while the buyer is assured that payment will only be made upon the fulfilment of these conditions. The MT 700 thus facilitates smoother, more reliable trade transactions by providing a framework within which trust can be established between international trading partners.
Usage rules
- Document length: For documentary credits requiring extensive explanation, additional information is to be communicated through MT 701 messages, ensuring comprehensive coverage without repetition.
- Operative credit instrument: Emphasises that, unless otherwise specified, a documentary credit communicated via MT 700 is deemed operative, underlining the message’s binding nature in trade finance operations.
- Field consistency: Information in MT 700 must not be repeated or conflict with that in any related MT 701.
- Clarity and precision: Advising banks must ensure the documentary credit is advised clearly and unambiguously to the beneficiary.
Potential issues with MT 700 usage
- Complexity and errors: The detailed and structured nature of MT 700 messages, while beneficial for clarity, can lead to complexity in filling out the forms accurately. Errors in these messages can cause delays in transactions, misunderstandings, or financial losses.
- Fraud risk: Despite the secure nature of SWIFT messaging, the system is not immune to fraud. Parties may present fraudulent documents or misuse the MT 700, necessitating robust verification processes.
Interoperability challenges: As global trade involves multiple parties across different jurisdictions, the varying levels of technological adoption can lead to interoperability issues, where not all banks or financial institutions can efficiently process or verify MT 700 messages.