Review of a L/C
A client recently asked us to review a letter of credit they had
received from a first time buyer located in the Middle East. In
a brief discussion, we learned that the seller [our client] had
not sent any instructions to the buyer about what terms and conditions
should be included in [and excluded from] the letter of credit.
We found that the L/C was to be advised rather than confirmed,
contained unlawful boycott language involving our company doing
business with Israel, and contained some "unique" terms
To resolve the problem we started with an overview of letters
of credit. We explained the essential elements of a letter of credit
A payment commitment made by the bank issuing the L/C
To pay the seller/beneficiary a specific amount of money
Provided the seller is able to present the specific documents
listed in the L/C to a specified person and/or place, and
Provided the seller can do so within a specified time frame.
We asked our client to think of a L/C as an unconditional promise
not to pay the seller unless the documents are exactly as required
in the L/C and presented within the time limits described in the
We provided an outline of the instructions that our client [the seller] would
typically give to the buyer or buyer's bank providing instructions on what
terms the L/C can and cannot contain.
We contacted the buyer by fax, and informed them of the amendments that would
be required in order for "us" to release the merchandise ordered
for shipment. We reduced the number of documents required, simplified the documentation
requirements for our client, required that the boycott language be removed,
and asked that the L/C be confirmed rather than advised given the political
instability in the region.
Was this overkill? We don't think it was. Why not? Because with letters of
credit if you don't get it right the first time you might not get another chance,
and that means you might not get paid.
Reprinted with permission from the Covering
Credit Newsletter 7/24/02 Edition © 2002 All Rights Reserved