Guides - 02
Letters of credit and the document set
A letter of credit is a bank's promise to pay the seller, on one condition: that the seller presents documents that comply with the terms of the credit. The bank looks only at the documents, not at the goods. So the documents have to be right.
How it works, in five steps
- 1The buyer asks its bank to issue a credit in favour of the seller.
- 2The credit reaches the seller, usually through a bank in the seller's country, which may also confirm it.
- 3The seller ships the goods and gathers the documents the credit lists.
- 4The seller presents the documents to the bank, within the dates the credit allows.
- 5If the documents comply, the bank pays or accepts. If not, it can refuse them as discrepant.
Most credits are issued subject to UCP 600, the International Chamber of Commerce rules for documentary credits.
The usual document set
- Commercial invoice - the description of goods must match the credit.
- Bill of lading - often a full set of originals, showing the goods shipped on board.
- Packing list - packages, weights and dimensions.
- Certificate of origin - where the credit or the importing country asks for one.
- Insurance certificate - where the seller insures, as under CIF or CIP.
- Inspection certificate - where the buyer has asked for an independent inspection.
The credit itself is the list. Read it line by line: it may ask for documents, wording or numbers of copies beyond these.
The dates that matter
- Latest shipment date - the on-board date on the bill of lading must not be later.
- Presentation period - under UCP 600, if the credit does not say otherwise, documents must be presented within 21 calendar days after shipment.
- Expiry date - the last day documents can be presented, whatever the presentation period says.
- Bank examination - under UCP 600, a bank has up to five banking days after presentation to decide whether the documents comply.
Discrepancies that stop payment
- Shipment after the latest shipment date, or presentation after the period or the expiry.
- A description of goods on the invoice that differs from the credit.
- Names, addresses or ports that differ between documents.
- A bill of lading without the on-board notation, or with a clause about damaged goods or packaging.
- Missing endorsements, signatures or the number of originals the credit asks for.
- Amounts or quantities outside the tolerance the credit allows.
Where we come in
We read the credit, list every document and condition it asks for, and check each document against the credit and against the others before you present them. Finding a discrepancy before the bank does is the point.
Services that use this
- Letter of credit document checkingDocuments checked against the credit before the bank sees them.
- Bills of lading and sea waybillsThe carrier's receipt and contract, prepared right.
- Certificates of originProof of where the goods were made.
- Commercial invoice and packing listPrepared to match the contract and the shipment.
Send us the details.
Tell us the cargo, the route and the dates. We will reply by email with what we can arrange.
