Letter of Credit Instructions
By Michael C. Dennis, MBA, CBF

Examples for L/C Terms and Conditions

From time to time, U.S. companies that export will opt to ship only against a letter of credit. In this situation, it is important to tell your foreign buyer what terms are acceptable in the L.C. This should be done before the buyer arranges for the L.C. to be issued. Your instructions to the customer should follow the following pattern:

Letter of Credit Instructions

In connection with your planned purchase, the following terms and conditions should be included in your letter of credit. Please instruct your bank to issue this letter of credit subject to the Uniform Customs and Practices for Documentary Credits, International Chamber of Commerce Publication 500. If your bank is unable to issue the letter of credit based on the following instructions, please provide us with information about which items the issuing bank objects to, and why. Instruct the issuing bank not to issue the letter of credit until these differences have been worked out. This will eliminate additional and unnecessary costs to your company associated with amending the letter of credit after it has been issued.

• Please establish an irrevocable, documentary letter of credit in favor of: Creditor Company Name and Address as beneficiary

• The letter of credit must be issued by no later than Date by a bank acceptable to us.

• The letter of credit (L/C) must be advised and confirmed by:
  Your Bank Name
  Attn: Export Letter of Credit Department
  Address
  SWIFT #:

• The L/C must be payable in U.S. Currency.

• The L/C must expire no earlier than (90 days after the issue date) in the U.S.A.

• The L/C must be payable against presentation and/or acceptance of the beneficiary documents at the counters of Your Bank Name together with draft(s) drawn on Your Bank Name payable at: (Sight or _____ days after bill of lading date)

• The required documents may include:
  Commercial Invoice, one original and 3 copies
  Packing List, one original and 3 copies
  Negotiable Insurance Policy or Certificate Policy for 110% of invoice value covering the following risks: please specify
  Full set of On board Ocean Bill of Lading
  Consigned to the order of the issuing bank. Marked: Notify Applicant

• The Shipping Terms must be:
  
  From any U.S. port.
  Latest shipment date: at least 60 days from the date of issuance

• The Bill of Lading shall be marked: Freight Prepaid

• The L/C must allow 21 days after issuance of the transport documents for presentation of documents at the counters of Your Bank Name

• The letter of credit must be payable against drafts drawn, at the beneficiary's option, on the issuing bank, on the advising bank, or on the reimbursing bank. Drafts must be [select one]:
  
  1. At sight, or
  2. At __ days from the date of the transport document/forwarder's receipt, or
  3. At ____ days from the date of the invoice

• Special Conditions:

  1. Partial shipments are permitted
  2. Trans-shipments are permitted
  3. The L/C amount +/- 10% is permitted
  4. The quantity of goods shipped +/- 10% is permitted

• Banking Charges:

  All bank charges are for the account of the buyer / applicant.

  The L/C must include reimbursement instructions which designate a U.S. reimbursing agent and authorizes Your Bank Name to claim reimbursement via SWIFT / Telex from the U.S. reimbursing bank.

Please note: We will not initiate shipment until the confirmed letter of credit is received but it may expedite processing if you will fax a copy of the letter of credit to [name] at [fax number]. This must be a copy of your bank's actual SWIFT message sent to the confirming bank.

* One note of caution: It is important for the exporting company to check with the export letter of credit department of its bank to make certain that the terms and conditions included in its instructions are appropriate for the country into which the seller/exporter plans to export its products.

Source: "Credit and Collection Handbook". Disclaimer: The information contained in this publication is not legal advice, and is not a substitute for legal advice. Readers are encouraged research issues carefully, and to contact an attorney in their State to clarify any issues raised after reading any of the articles in this publication.