A CICP enables an importer to determine, well before the payment date, the exchange rate to be applied when it transfers currency to pay its suppliers.

The principal determines the price at which it wishes to buy the currency on the spot market, and the bank buys the currency on the market by advancing cash in local currency.

The purchasing customer has a time limit to use the documentary credit to determine or even change its purchase price in line with market developments. However, once the rate has been reached, the customer cannot change it.

If the rate proposed by the principal has not been reached before the LC is used, its order will be changed to the market price or “at best”.

The principal receives a deferred cash hedge from the opening date of the CREDOC up to a maximum of 360 days.

A CICP provides protection from currency risk.