or worthless merchandise against presentation by the beneficiary of forged or falsified documents. Legal Risks There is the possibility that performance of a documentary credit may be disturbed by legal action relating directly to the parties and their rights and obligations under the documentary credit or performance may be prevented by government action outside the control of the parties. Alternatively, performance of a contract – including an obligation under a documentary credit relationship – could also be prevented by external factors such as natural disasters or armed conflicts. These risks, however, are often seen as secondary to the risk of non-payment. Applicant Several risks could relate to the parties of the applicant themselves. These may include situations where there is a non-delivery of Goods, Short shipment, the goods are of inferior quality, are damaged, or are late. The applicant is also exposed to the failure of the bank to make payment. Issuing Bank The issuing bank is also exposed to risks which it may seek to mitigate through various techniques. It will be exposed to the insolvency risk of the applicant, that is, the risk the applicant runs insolvent before it is able to repay the letter of credit. Secondly, the bank will be exposed to a risk of fraud by the seller, who may provide incorrect or falsified documents to receive payment. If the bank ought to have known that the documents were a fraud, then the bank will be exposed to a fraud. Beneficiary The beneficiary will be exposed to the risk of its own failure to comply with credit conditions or failure of, or delays in payment from, the issuing bank. These risks are considered remote. Crucially, the beneficiary is not exposed to the risks of set-off by the applicant where the goods are damaged or are of inferior quality. While he may be sued by the applicant at a later point, the issuing bank cannot reduce the payment owed to correspond with the damage occurred. This is crucial in mitigating the risk to insolvency. Crucial to a letter of credit is the beneficiary's (the seller) attempt to isolate itself from the credit risk of the buyer. That is to say, it is concerned primarily with the ability of the buyer to pay for the goods. Pricing Issuance charges, covering negotiation, reimbursements and other charges are paid by the applicant or as per the terms and conditions