Letters Of Credit Funding - Features & Benefits

The Letter of Credit will be received by a bank in the Exporter's country, which will authenticate it and check that its terms and conditions are workable. They then pass the Letter of Credit on to the Exporter.

Please note that if the bank is merely passing the Letter of Credit on to the Exporter, they are known as the Advising Bank.

However, if the bank is adding their undertaking to pay, they become the Confirming Bank | Accepting Bank.

The Exporter, or Beneficiary, should make the following checks when the LC arrives to ensure that the terms match those originally agreed with the Importer.

1. Is the Letter of Credit subject to the latest version of the Uniform Customs and Practice for Documentary Credits (UCP) of the International Chamber of Commerce?

2. Check the authenticity of the LC
If LCs are received that depart from the routine of being sent to the Exporter from an Advising/Confirming Bank in the UK, they should be handled with caution. Likewise, if the UK bank is not recognised, check its authenticity with Barclays.

3. Does the type of LC give the required level of security?
Is confirmation of the LC required? If so, establish whether the LC is in fact confirmed, thus carrying the extra and separate undertaking of a second bank, usually in the UK. Also establish whether it is revocable or irrevocable. Remember revocable LCs can be cancelled without the Exporter's prior knowledge. LCs issued under UCP600 are assumed to be irrevocable.

4. Is the LC payable when and where requested?
The LC may specify payment at sight, ie. when the correct documents are presented to the Paying Bank, or at a later date, a set period of time after the documents have been accepted. The LC can either be made payable in the UK, with little or no delay after checking by the Paying Bank, or abroad with possible delays. With payment abroad please note that the Exporter is responsible for postal delays in presenting documents overseas within the time limits set by the expiry date.

5. Is the value of the LC correct?
Ensure the LC covers the full invoice value, incorporating any additional costs such as freight and/or inspection fees.

6. Are the Importer and Exporter's details correct?
Ensure the Exporter's name and address are spelt correctly and that they are shown exactly as they are on the invoice heading. Similarly, ensure the Importer's name and details are copied from the invoice.

7. Are the terms of shipment correct?
Ensure that the terms of shipment are the same as you quoted and that they match the price properly.

8. Are all the charges correct?
Ensure that only the bank charges that have been agreed to pay are stated. Pay particular attention to bank reimbursing charges with an LC not expressed in sterling.

9. Can the expiry date be met?
Ensure that the Exporter can present the documents within the terms of the LC.

10. Make sure that time is allowed for the following:

production and packaging
inspection
shipment
chamber of commerce and consular work
obtaining the inspection certificate
assembling and checking documents
presenting documents to the bank.

Note that the last four stages must be completed within the number of days as stated with the LC, taken as 21 days if no other time limit specified.

11. Can you provide the transport documents called for?
Ensure that you are able to provide any transport documents required.

Amendments

If the Letter of Credit is wrong or ambiguous in any way, or the Exporter cannot comply with any of the terms, the Exporter should contact the Importer to request that the LC is amended. If this is agreed, the Importer would then ask their bank to issue an amendment. If no amendment is made, there is a risk of non-payment.

If you are in doubt about any of the terms of the LC, always consult Barclays and/or the Advising Bank for advice. Also remember that only the Importer can authorise amendments or extensions through their bank.

It is advisable for an individual within the Exporter's company to act as a co-ordinator of progress of the transaction for the Letter of Credit between the insurance company, the freight forwarder and all departments within the company.