Hello all,

This topic is old. But many are still asking about it. So I decided to rewrite it but rewrite it short.

You should remember that LC based trade transaction applies a bank to bank procedure. Once buyer applies for a Letter of Credit facility in buyer's bank, the rest of the procedure is executed by the bank.

LC is basically a promise to pay. Buyer's bank will pay seller via seller's bank as long as all terms and conditions mentioned in the LC are fulfilled. Sometimes, terms and conditions mentioned in LC also refers to other document such as Sales and Purchase Aggreement (SPA) that the SPA is taken as an integral part of the LC too.

Some very common reqirement of documents usually asked by LC for seller to submit to the bank are as follows:

1. Commercial Invoice
2. Packing List
3. Bill of Lading (BL)
4. Certificate of Origin

Another additional document that is also common to ask is certificate of inspection for quality or quantity by third party inspection or surveying company.

For Commercial Invoice and Packing List, they may be a bit confusing when it is a first tie for you to make but in fact, what should be written in these documents are mentioned in the LC. So all you have to do is to make sure that you make the documents according to what the LC requires.

Certificate of Origin is also an easy one. This is provided by an authority in your country. It could be the trade department, chamber of commerce, or other institution appointed by the government.

Now, the most important part off all is the Bill of Lading (BL).

This is actually the reason why i wrote this article.

During a trading negotiation, when all points related with products are clear, it is then time for both seller and buyer to discuss about payment term. As I will usually do, when a buyer propose payment via LC, the first question I ask is what kind of documents will the LC requires. So it is buyer decides the documents.

But what if you as a buyer are in opposite situation. It is your seller decides the documents? And this happens a lot.

In such situation, the most important thing that you should pay attention to is the BL.

There are two kinds of BL.

1. Master BL, a BL released by the shipping company. If the container is shipped by NYK, the BL should be released by NYK too. This assures you that NYK has shipped the container according to the written details in the BL.

2. House BL, a BL released by the freight forwarder. Freight forwarder is basiccally a third party who offers service to send the container. Off course in offering you their service, they will show you alternatives of vessel going to the destination. But one thing you should remember, if you are given a house BL, there is no guarantee that the container has been shipped and by using what vessel. This means, if you accept House BL, it is very easy for the seller to provide while there is very low certainty that the cargo has been delivered.

Based on the above explanation, the very big chance of seller cheat you via LC is by offering you a House BL. This has happened to one trader who contacted me long time ago and told me that he was cheated this way. In fact i was almost cheated this way too.

I hope this article helps,

Good Luck

Buyers should also be aware that satisfaction of an LC means that product has been shipped, but does not guarantee that the quality of the production is good or even that what is in the container is what you ordered.

So to be very safe buyers are advised to always arrange a pre-shipment inspection to ensure that production has been done to requirements BEFORE releasing the container to be shipped.

it is safe, but before open officianl L/c , better negociate all terms with supplier. other wise , supplier may refused , it will cost your end cost to re open l/c.