10 Tips for checking letter of credit

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Be sure Be safe have smooth exports.
10 Tips for checking Letter of Credit
** Remember : LC is international document, rule apply same for all countries.
I have tried to use minimum technical & legal language, tried to keep simple.

How dose LC look like
Swift
code
/
Point
no
Description / content

Remember
NEXT POINT WILL HELP YOU
TO BE SURE OF CONFIRM ORDER
If L/C is authentic meas order is confirm

1. Authentication of LC
 LC is one of the safe mode of payment.
 It is Win-Win payment terms for Buyer & Seller.
 Ask your customer to send LC document to your bank.
 If you get LC directly by mail, collect original LC from bank.
 Get your LC “confirmed” through your bank.
 Check Point 21: Documentary credit no. ( LC Number)
 Ask them open LC from reputed bank – European / US bank
 Check for Point 72 : Advising bank (normally end of LC)

YOU ARE IN SAFE HANDS
POINT - 2 TO 6
WILL ASSURE YOU
YOUR PAYMENT IS SAFE

2. Beneficiary /Applicant details.
 Check Point : 50 : Applicant
 It should be same as your buyer.
 If you agreed that the buyer is different than applicant, you will have to mention both name in
invoice. (check multi-party Invoice Presentation)
 You need to write exactly same as mentioned in LC (even “, & .” mistake can cost you $50-100
or more penalty.
 Beneficiary : This should be seller name.
 If you find mistake in name address, ask for LC amendment
 Never ignore mistake of even – SPACE OR FULL STOP

3. Currency & Amount
 Check for point 32, 32B.
 Check for agreed currency and amount you agreed.
 Bank will not pay a penny more than this value.
 Some time you can negotiate for +/-10% qty or value.
 Even mistake if Decimal value – bank can deny to pay.
 Incase of discrepancy – ask your Buyer for LC amendment.
 Buyer will ask you to process document & assure you, don’t get trapped.
 Ask an expert advice and have firm communication.

4. Date of LC, Expiry, Last date of shipment
 Bank has no responsibility if the documents is received after Dt of expiry.
 Date of LC : Date when buyer actually opened the LC.
 Date of Expiry : Bank/buyer has no obligation to pay after this date.
 Last date of shipment : This is most mis-understood term.
 It means the goods should be OnBoard on or before this Last date of shipment.
 Last date of submitting document : Doc. Should reach bank before this date.
 Check for 31C, 31D, 44C, also check 48
 Normally the document have to be submitted with in 10 days of shipment.

5. Erre-vocable LC (irrevocable)
 Check for point : 40A, 40B
 Normally it is first few line of the LC document.
 40A : should mention word Irrevocable
 Irrevocable – means customer can not cancel the LC
 The LC will be valid till the expire period of LC.
 If Seller supply good & submit document as per terms in LC then bank will have to pay the
money to Seller.
 Check Point 49 : Confirmed or Without confirmation.
 Confirm LC is best, you can pay some money and can get it confirmed.

6. Finance: Payment available
with
 Check point 41 A
 This tells you where is the Money.
 Buyer deposit money to his bank. This bank transfer money to your bank direct or via interment
bank.
 This point tell you where is money : Buyer country, Your country or any 3rd Bank or country.
 Needless to say, the money should be in safe hands.

Important for Smooth exports:
Next Points are very important & longest part of L/C
They will ensure smooth order execution
&
assured payment

7. Goods Partial shipment / Trans shipment
 This is very important point – some time missed by seller.
 Check for Point : 43, 43P & 43T
 Partial shipment : Allowed (this allows you to send part order in 2 or more lot or just execute
partial order)
 Transshipment : Allowed (Many time buyer writes Not Allowed)
 Transshipment – allows shipping line to change ship after it leaves from your country. (its better
in to select cheaper shipping line)

8. Handling Port of loading & Discharge
 Check point 44, 44F & 44C
 Port of loading: You can only ship good from mentioned port.
 It is favorable if you get term : Any port in (country name eg. India)
 Port of discharge : This specify’s which port the goods will land. This is discretion of buyer.
 Your BL and invoice should mention same Port of discharge.

9. Document required
 Check point 46
 This is longest part of LC document, with many bullet points.
 Some time it is difficult to understand so ask an expert.
 Your Bank, Forwarder, CHA can also help you understand these point.
 This give you clear instruction, Which document? How many copy? Where to send? What care
to take? Who will take insurance? Etc.
 Read, Highlight, underline with red pen on receipt of LC.
 Do not wait till its time of Dispatch… you will be in trouble.

10. Additional condition :
 This is where banks makes the money.
 Wondering why you received $500 less than you deserve?
 Find for word “Discrepancy Charges “
 When bank receive document, they try to find mistakes in your document even “.” “,” spelling
mistake, silly mistake etc.
 Bank will raise an alarm “Discrepancy!!” they will inform buyer and your bank – document not as
per LC
 This is for the safety of Bank and its Buyer. But it can cost you a lot.

Conclusion
 LC is one of safest mode of payment.
 But safety comes at cost.
 Your bank will charge you good money for handling LC
 Buyers bank will charge his money to open LC
 Bank may charge you Discrepancy charges too.
 You can check – Credit risk insurance – some time it is cheaper – let us know if you want to
know more of ECGC

To know more & verify LC
Contact :
Vivaan Consultancy Services
+918141270351
vivaanconsultant@gmail.com
www.vivaanconsultancy.com

10 Tips for checking letter of credit

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