Export Letter of Credit
Making a complying presentation and receiving payment quickly
When seeking a letter of credit, it is critically important to specify the required LC terms.
We can structure the best letter of credit terms to help you make a complying presentation of documents and receive payment quickly. Working with you, we will prepare a draft of the required letter of credit which can be sent to the buyer (LC applicant). It is also recommended that you obtain the buyer’s completed letter of credit application form before they send this to their bank, for examination and approval.
These measures reduce the risk of receiving a letter of credit which has onerous, confusing or unacceptable terms, or those which are not achievable.
We see many letters of credit which are technically unworkable – this means that it is not possible for the beneficiary to comply with the terms, potentially losing control of the goods and placing payment at risk – not a good combination!
Let us guide you through each stage of the process – we can even prepare the documents for presentation to the bank.
Key risk considerations
The letter of credit should be made available with a local bank by payment at sight, acceptance, deferred payment or negotiation.
We strongly recommend that you stipulate your requirement for a confirmed letter of credit. Not only does this remove the risk of issuing bank insolvency, country transfer risk and political risk, but once the confirming bank has examined the documents and found them to comply, it removes arguably the greatest (but largely not understood) risk of non-payment resulting from the issuing bank’s scrutiny of documents and their rejection.
When you wish to exercise control over which bank can handle the documents the LC should be made available with ‘any bank by negotiation‘.
When you wish a specific bank to add its confirmation to the credit (other than the designated receiving bank), this should be specified in SWIFT field 58a ‘Requested Confirmation Party’ accompanied by completion of SWIFT field 57a ‘Advise Through Bank’.
The latest date of shipment and document presentation period must be achievable.
The required documents must be under your control (no documents should be issued or signed by the LC applicant), and the documentary conditions clear and achievable.
Where bills of lading are to be presented, you should have control over receipt of the bills of lading (preferably as the freight contracting party). It is important that the full set of original bills of lading are required to be presented under protection of the letter of credit . You should reject any LC stipulation which requires documentary evidence that one original bill of lading has been sent direct to the LC applicant (or their agent), as you will lose leverage in case of a discrepant presentation, and lose control over the goods.
To receive a free copy of our exporter’s LC checklist, please email stephen@axstradefinance.co.uk