How to Check the Incoming Letters of Credit
Post 1 of 44
If the exporter receives a letter of credit (L/C) directly from an issuing bank in the importing country, he/she must be very careful if the integrity of the issuing bank is unknown and the authenticity of the credit is in question.
Errors in the terms and conditions of a letter of credit may occur as a result of the applicant's error in preparing the L/C application and/or the issuing bank's error in preparing the L/C. The exporter must check the L/C immediately and thoroughly upon receipt from the bank, to ensure that the terms and conditions stipulated in the L/C are correct and conform to the sales contract, and that he/she can comply exactly to the L/C requirements. Otherwise, the exporter must immediately ask the importer to amend the L/C .If any terms and conditions of the letter of credit are not complied with, no matter how small, a discrepancy is said to occur and it can delay or prevent the payment.
The exporter should check the details of letter of credit, including the following:
1 The names and addresses are complete and spelled correctly.
2 The L/C is irrevocable and confirmed by the advising bank, conforming to sales contract.
3 The amount is sufficient to cover the consignment.
4 The description of goods is correct.
5 The quantity is correct.
6 The unit price of goods, if stated in the L/C, conforms to the contract price.
7 The latest date for shipment or the shipping date is sufficient to dispatch the consignment.
8 The latest date for negotiation or the expiry date is sufficient to present the documents and draft(s) to the bank.
9 The port (or point) of shipment and the port (or point) of destination are correct.
10 The partial shipment/drawing is permitted or prohibited.
11 The transshipment is permitted or prohibited.
12 The L/C is transferable or non-transferable.
13 The type of risk and the amount of insurance coverage, if required.
14 The documents required are obtainable.
15 The following words, or similar, are present in the L/C:
"Unless otherwise expressly stated, this Credit is subject to the Uniform Customs and Practice for Documentary Credits, 1993 Revision, International Chamber of Commerce Publication No. 500."
Errors in the terms and conditions of a letter of credit may occur as a result of the applicant's error in preparing the L/C application and/or the issuing bank's error in preparing the L/C. The exporter must check the L/C immediately and thoroughly upon receipt from the bank, to ensure that the terms and conditions stipulated in the L/C are correct and conform to the sales contract, and that he/she can comply exactly to the L/C requirements. Otherwise, the exporter must immediately ask the importer to amend the L/C .If any terms and conditions of the letter of credit are not complied with, no matter how small, a discrepancy is said to occur and it can delay or prevent the payment.
The exporter should check the details of letter of credit, including the following:
1 The names and addresses are complete and spelled correctly.
2 The L/C is irrevocable and confirmed by the advising bank, conforming to sales contract.
3 The amount is sufficient to cover the consignment.
4 The description of goods is correct.
5 The quantity is correct.
6 The unit price of goods, if stated in the L/C, conforms to the contract price.
7 The latest date for shipment or the shipping date is sufficient to dispatch the consignment.
8 The latest date for negotiation or the expiry date is sufficient to present the documents and draft(s) to the bank.
9 The port (or point) of shipment and the port (or point) of destination are correct.
10 The partial shipment/drawing is permitted or prohibited.
11 The transshipment is permitted or prohibited.
12 The L/C is transferable or non-transferable.
13 The type of risk and the amount of insurance coverage, if required.
14 The documents required are obtainable.
15 The following words, or similar, are present in the L/C:
"Unless otherwise expressly stated, this Credit is subject to the Uniform Customs and Practice for Documentary Credits, 1993 Revision, International Chamber of Commerce Publication No. 500."
24 Oct 2006 22:22
Post 2 of 44
Replying to [sktyagi]:
You are correct. Letter of Credit issued by the issuing bank must correspond with the sales contract earlier established. Any descrepancy found in the LC would put the bank in the position to reject the documents entirely.
LC is the instrument of payment and payment under LC is conditional.
It is also important to note that all terms and conditions agreed upon by buyer and seller must be able to proved by a documents. LC should not contain a non documentary conditions at all.
You are correct. Letter of Credit issued by the issuing bank must correspond with the sales contract earlier established. Any descrepancy found in the LC would put the bank in the position to reject the documents entirely.
LC is the instrument of payment and payment under LC is conditional.
It is also important to note that all terms and conditions agreed upon by buyer and seller must be able to proved by a documents. LC should not contain a non documentary conditions at all.
01 Mar 2007 01:12
Post 4 of 44
Replying to [sktyagi]:
Confirmation might not be necessary, depending on the strength and reputation of the issuing bank.
Confirmation might not be necessary, depending on the strength and reputation of the issuing bank.
19 Mar 2007 14:46
Post 5 of 44
Replying to [3D_puzzle]:
The other factor why the LC need to be confirmed is convenient to obtain payment by the seller.
By having the LC confirmed by the confirming bank in the country of the seller, the seller can obtain the payment in his country. This would mean the time taken for the documents to travel is very much shorter as well as the disbursement of the payment.
In other word, the confirming bank in the country of the seller now has become an issuing bank.
Another thing is, payment made by the confirming bank to the seller is without recourse. So, to further guarantee the payment, it is advisable to get the LC confirmed especially for first time trader.
However, please avoid 'silent confirmation' as this is not an undertaking. Traders are advised to get a confirmation letter from the confirming bank if the LC is to be confirmed.
There are banks around the world making so called 'non fund based income' by providing 'silent confirmation' service and yet, payment is made with recourse.
So, be careful when receiving a confirmed LC.
The other factor why the LC need to be confirmed is convenient to obtain payment by the seller.
By having the LC confirmed by the confirming bank in the country of the seller, the seller can obtain the payment in his country. This would mean the time taken for the documents to travel is very much shorter as well as the disbursement of the payment.
In other word, the confirming bank in the country of the seller now has become an issuing bank.
Another thing is, payment made by the confirming bank to the seller is without recourse. So, to further guarantee the payment, it is advisable to get the LC confirmed especially for first time trader.
However, please avoid 'silent confirmation' as this is not an undertaking. Traders are advised to get a confirmation letter from the confirming bank if the LC is to be confirmed.
There are banks around the world making so called 'non fund based income' by providing 'silent confirmation' service and yet, payment is made with recourse.
So, be careful when receiving a confirmed LC.
22 Mar 2007 18:48
Post 6 of 44
Replying to [sktyagi]:
Why bother with all that effort. Just take it to your local bank and have the trade section check the identity for you.
Why bother with all that effort. Just take it to your local bank and have the trade section check the identity for you.
23 Mar 2007 02:18
Post 7 of 44
Replying to [edglimited]:You are right. One can do that also but in business one must know all the procedures and the possible threats.
24 Mar 2007 22:11
Post 8 of 44
Replying to [sktyagi]: You are absolutely right. There have been some cases where the Buyer has used an error containing L/C (even with a slight error) on purpose, to deny payment later on and renegotiate price / terms on this basis.
I know a supplier who used to copy all details in the shipping documents from the L/C, even the errors!![[em2]](http://img.alibaba.com/images/eng/style/icon/emoticons_laugh.gif)
Better safe than sorry.
I know a supplier who used to copy all details in the shipping documents from the L/C, even the errors!
Better safe than sorry.
28 Mar 2007 05:25
Post 9 of 44
Replying to [sktyagi]: Hello my friend, I just saw your informative posting. I rated as worth reading and added to my "watch list". Thank you.
Moolan![[em1]](http://img.alibaba.com/images/eng/style/icon/emoticons_smile.gif)
![[em19]](http://img.alibaba.com/images/eng/style/icon/emoticons_great.gif)
Moolan
07 Apr 2007 09:02
Post 10 of 44
Replying to [Moolan99]:
Thanks and I feel honoured.
Thanks and I feel honoured.
08 Apr 2007 03:26
Post 11 of 44
Quoting from [hadeed]:
Replying to [sktyagi]: You are absolutely right. There have been some cases where the Buyer has used an error containing L/C (even with a slight error) on purpose, to deny payment later on and renegotiate price / terms on this basis.
I know a supplier who used to copy all details in the shipping documents from the L/C, even the errors!
Better safe than sorry.
i have heard of this as well.... I feel that some of the business man is willing to do anything in order for them to earn more.... therefore I feel that L/C is a document that can be easily misused by many unethical businessman...
11 Apr 2007 08:40