Keep in mind that your company may have more than one location. The address that appears in the LC, which could be your corporate headquarters, may not be the address that is shown on your documents. Make sure these two agree or else the bank will call a discrepancy.

2. Does the LC state it is irrevocable?

Most companies don’t want to ship against a revocable LC since it can be canceled or amended without your agreement. If the LC doesn’t state that it is irrevocable, but it also doesn’t state that it is revocable, you can relax. According to article 6c of the UCP 500, it is then automatically considered to be irrevocable.

(Most letters of credit today are subject to the UCP 500, a publication issued by the International Chamber of Commerce also known as “The Uniform Customs and Practice for Documentary Credits, 1993 Revision.”)

3. Was it necessary for the LC to be confirmed and, if so, is the confirming bank acceptable?

Please refer to my previous article regarding LC confirmation. If you are uncomfortable with either the country of the buyer or the issuing bank, a confirmation may be in order. You also need to be sure that you are comfortable with the bank adding their confirmation.

4. Is the amount and currency of the LC correct?

Does the amount and currency agree with the sales contract? Remember, if the credit is issued for a stated amount, that’s it. You can’t draw one penny more than the LC value. If the words “about” or “approximately” are used with the amount of the LC, you automatically have a leeway of plus or minus 10 percent.

5. Is the tenor of the draft acceptable?

When are you expecting payment? If it’s at the time of document presentation, a sight draft should be required. If you agreed to a financing period, the tenor of the draft should properly reflect the correct number of days.

6. Is the merchandise described correctly?

This is one of those really picky points with the bank. The merchandise description on your invoice must exactly match the description in the LC. If it is misspelled on the LC, you’ll either have to misspell it on the invoice or have the LC amended.

7. Does the Incoterm match your sales contract?

Incoterms 2000, which are published by the International Chamber of Commerce, determine where the costs and responsibilities of the seller end and where they begin for the buyer. Incoterms specify the method of shipment, who is paying the freight, and who is buying the insurance.

8. Are the transportation details correct?

Does the method of shipment agree with your sales contract? Are the ports/airports of loading and discharge acceptable? Is a negotiable bill of lading versus a non-negotiable bill of lading addressed correctly? These are critical issues that need to be correct in the LC.

9. Can the shipping date be met?

Remember that if this date falls on the weekend, you still have to ship by this date; it does not automatically extend to the next “business” day.

10. Are the insurance instructions clear and correct?

Were you planning on providing the insurance, or was the buyer taking care of this detail? Does this correspond to the Incoterm being used?

11. Is the expiration date acceptable, and does it expire in the US?

If this day falls on a weekend or a day when the bank is closed, you have until the next banking day to present your documents.

12. Are the document requirements clear and understandable?

Is the LC requesting any documents that you weren’t expecting? Will this add any additional expense?

13. Does the LC contain reimbursement instructions?

If not, payment won’t be made before documents arrive at the issuing bank’s counters unless your bank will make special arrangements. Is this acceptable?

14. Are the banking fees being paid by the correct parties?

It is very common for the buyer and seller to pay their own bank's fees. Is this what has been agreed to and is it clearly stated in the LC?

15. Is the LC subject to the UCP500?

If the LC was issued in a SWIFT format (a standard format used for a number of international banking transactions including the issuance of letters of credit), the issuing bank automatically agreed to subject their LC to the UCP 500. If the LC was issued in any other format and doesn’t mention the UCP 500, you probably should have the LC amended.

If, after reviewing the letter of credit, you determine that everything is acceptable, you can proceed with the shipment.

If there are problems with the LC, however, you must make some decisions: Do you play it safe and go for the amendment, or do you go ahead and ship knowing there are going to be problems and discrepancies. Or is the LC so bad that you should think about canceling the order? If this is the case, please consult others in the company for their agreement before proceeding!