Letter of Credit Checklist and Guide for Exporters



Letter of Credit Checklist and Guide for Exporters :

Detailed Checks to be made immediately after the Letter of Credit is received.

Does the type of Letter of Credit give you the security of payment you wanted?

Irrevocable, but carrying only the undertaking of your customer's bank in his country.

Irrevocable and Confirmed, carrying the extra undertaking of a bank

Revocable which can be cancelled without your agreement at any time before documents have been accepted by the paying bank.

Is it payable when and where you wanted?

At sight

At a later date

In India with little or no delay

Abroad

Is the value of the Letter of Credit correct?

Any extra agreed costs, such as freight or inspection fees Unplanned variations - unto 5 percent is sometimes allowed in quantity. The value of Letter of Credit must permit a corresponding drawing to be made

Planned variations - ABOUT in a Letter of Credit permits upto a 10 per cent variation in whatever it refers to e.g. value or quantity and as specified

Are the terms of delivery the same as you quoted? (E.g. FOB, CIF) and do they and the price match properly?

Are your company’s names and address spelled correctly and shown exactly as on your invoice heading? And are the buyer's details similarly correct?

Are partial shipments prohibited?

Can you meet the expiry date and also present documents within transport document time limit?

Allowing time for –

Production and packing

Inspection, if required

Shipment - check sailing frequencies

Chamber of Commerce and/or Consular work

obtaining the inspection certificate

Assembling and checking documents

Presenting them to the bank

NOTE :

That the last four stages must be completed within 21 days of the issue of the transport document in order to present documents in time - unless the Letter of Credit specifies a different period which could be less.

Has any export or import licence been obtained?

Are the goods described accurately enough to identify them properly and are the quantities and other units correct?

Can you provide the transport document called for?

ON DECK shipment must be authorized if the goods are dangerous or for any reason cannot be stored under deck.

CLAUSED transport documents must be permitted if your products legitimately attract such clauses - such as superficial rust on steel.

The Letter of Credit must state which clauses are acceptable.

Can you obtain insurance cover for the risks specified?

Can you supply all other documents in the way called for? Remembering that some - such as Inspection Certificate or Consular Documents - may take some time to arrange.

Are there any contradictions in the Letter of Credit such as requiring bills of lading for air freight?

If any of the above points fail to check out, prompt decision and action is necessary on.

Whether you can change your plans or paper-work to meet the requirement.

Whether to ask the customer to amend the Letter of Credit and who pays for the amendment.

Whether to let things stand and very possibly not be paid.

If in doubt, consult your own bank and/or the paying bank for advice. But remember that only the buyer can authorize amendments or extensions.

If the Letter of Credit has been telexed or cabled - check that it provides details of the Letter of Credit that you can act on and is not just a preadvice.

Watch out for forgeries - rare but dangerous. Letters of Credit are normally sent through an advising bank. Any departure from this routine should be viewed with suspicion. For example if it comes to you direct from overseas.

When assembling documents for presentation to the bank –

Check that the documents match the Letter of Credit and ensure that you have the correct number of copies of each and they carry the information called for and the name of each is correct.

The document name must match exactly what the Letter of Credit calls for.

They are consistent, for example…. the shipping marks. Quantities, weights, transport details, references and in general terms the description must tally.

The description of goods is correct. They may be described in general terms. not inconsistent with the Letter of Credit. in all documents except the invoice. where the exact Letter of Credit description must be reproduced. Letter of Credit details should preferably not be repeated in full in transport documents.

Documents are authenticated where necessary - import regulations in some countries still make it essential to sign and possibly witness documents and any alterations or additions to them.

Any restrictions in the Letter of Credit are catered for.

Check each document to ensure it is in order.

Transport document :

(i) Type of transport document

(ii) Consignor - can be different from beneficiary

(iii) Consignee's name and spelling

(iv) Places and ports

(v) Clauses

(vi) On-deck shipment

(vii) Intended, received, on-board or transshipment notations (if the Letter of Credit calls for Marine Bills of Lading).

(viii) Freight paid notation - authenticated if an addition

(ix) Full set of originals - unless otherwise permitted

(x) Date of shipment (on board or despatch or taking in charge date, as applicable) and date of issue - watch the time limit for presentation.

Insurance document

(i) Type e.g. a Certificate

(ii) Correct amount e.g, CIF plus 10 per cent

(iii) Same currency as the Letter of Credit unless otherwise stipulated in the Letter of Credit

(iv) Risks covered

(v) Date - not later than date of issue of the transport document

(vi) Endorsed if necessary

Invoice

(i) Invoice heading in your Company's name, expressed and spelled as in the Letter of Credit

(ii) Made out in name of buyer, expressed and spelled exactly as in the Letter of Credit

(iii) Description of goods - including import licence or proforma details - price and terms of delivery - worded and spelled exactly as set out in the Letter of Credit

(iv) Clauses or statements - word for word identically spelled

(v) Value not more than the Letter of Credit permits and the same as Bills of Exchange - you can under certain conditions sometimes underdraw by up to 5 per cent

(vi) Quantity - a 5 per cent variation is sometimes permitted - see Uniform Customs on variations - but only where the value of the Letter of Credit allows for this

(vii) Reproduced and authenticated as necessary in a way allowed for by Uniform Customs and in the Letter of Credit e.g. copier, computer and carbons



Other Documents

(i) Correct issuer

(ii) Correct wording or content

(iii) Clearly relates to the goods invoiced

(iv) Letters, telexes to the buyer correctly set out and addressed and dated Certificates to cover any other Letter of Credit requirement

Bills of Exchange (if any)

(i) Date

(ii) Signature

(iii) Endorsement

(iv) Clause

(v) Letter of Credit number

(vi) Term-sight or usance dates

(vii) Amount and currency

(viii) Words and figures tally

(ix) Drawn on correct party

(x) Correct number e.g. sole or 1st and 2nd of exchange



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