HOW TO CHECK LETTER OF CREDIT?

 

HOW TO CHECK LETTER OF CREDIT?

1.   Make sure that the date of issue indicated in the letter of credit. Some letters of credit states that documents must not be dated before the letter of credit issuance date. You must ensure that if such a clause has been inserted into the credit. If so, you should comply with this regulation

2.      Make sure that you can make shipment before the latest date of shipment.

3.      Make sure that you can present documents before the expiry date of the letter of credit.

4.     Verify the expiry location of the letter of credit.

5.    If the letter of credit expires at the counters of the issuing bank, but not in your own country, you may require extra time for forwarding the documents to the issuing bank.

Check and Verify:

1.      Make sure that the issuing bank is a valid and trustworthy bank whom you are comfortable to work with.

2.        Make sure that the advising bank is a reputable bank located in your country.

3.     Make sure that you have received the letter of credit in swift format through an advising bank in your country.

Check and Verify:

1.     Make sure that the full name of your company and its address are correctly stated in the letter of credit.

2.     Make sure that the full name of the importer’s company and its address are correctly stated in the letter of credit.

Check and Verify:

1.      Make sure that the letter of credit amount is correct.

2.      Make sure that the letter of credit currency is correct.

Check and Verify:

1.      Make sure that description of goods and services are corresponding the sales contract.

2.      Make sure that all goods have been covered under the commercial invoice.

Please give enough attention to the documents which have been covered specifically under the letter of credit rules and international standard banking practices such as transport documents, insurance documents, bills of exchange, commercial invoices, packing lists and certificates.

Check and Verify:

1.      Make sure that you can provide all documents required under the letter of credit.

2.      Make sure that you can comply with the signature, issuance and authentication requirements of the documents.

3.      Make sure that you can supply documents on time.

4.      Make sure that there is no document should be issued or countersigned by the applicant

Check and Verify:

1.      Make sure that payment terms quoted in the letter of credit agree with the sales contract.

Check and Verify:

1.      Make sure that Incoterms and the shipment mode must match each other.

2.      Make sure that “Freight Collect” and “Freight Prepaid” expressions are in accordance with the applied Incoterms.

3.      Make sure that you know your responsibilities under the Incoterms which is stated in the letter of credit.

Check and Verify:

1.      Make sure that port of loading and port of discharge stated in the letter of credit is consistent with your sales contract.

As a result, exporter may be facing to pay

·         “Courier Fee / Postage Fee”,

·         “Advising Fee”,

·         “Discrepancy Fee”,

·         “Handling Fee / Negotiation Fee”,

·         “Amendment Commission”,

·         “Confirmation Fee”,

·         “Reimbursing Bank Charges”.

 

Reimbursing Bank Charges”.

Reimbursing Bank is one of the parties involved in an LC. Reimbursing bank is the party who authorized to honor the reimbursement claim of negotiation/ payment/ acceptance. Reimbursing Bank is the settlement bank between the issuing bank and the nominated bank or the confirming bank.

Discrepancy Fee:

This is charged by the ISSUING BANK when they receive documents for negotiation under the LC and those documents are found to not be in compliance with the terms and conditions of the LC.

Check and Verify:

1.      Understand and determine which fees must be paid by the exporter according to the letter of credit conditions.

2.      Try to figure out how much money you have to pay for each sort of letter of credit fees.

STANDARD TIME OF LETTER OF CREDIT: -

According to the letter of credit of rules the standard period is 21 Days between the latest date of shipment and the expiry date of letter of credit.

Check and Verify:

1.      Make sure that transshipments are allowed under the letter of credit and it is what you have agreed on your sales contract.

What does reimbursement mean?

Reimbursement is money paid to an employee or customer, or another party, as repayment for a business expense, insurance, taxes, or other costs. Business expense reimbursements include out-of-pocket expenses, such as those for travel and food.

Documentary Condition Examples:

·         Certificate of origin issued in 1 original and 1 copy legalized by the local chamber of commerce attesting that goods are of China origin.

·         Certificate of origin must show that goods are of China origin.

Non-Documentary Condition Examples:

·         Exported goods must be Australian Origin.

·         Any of the presented document must not show that goods are originated from a country other than Australia.

Check and Verify:

1.      Make sure that you can have the letter of credit confirmed by one of the prime banks in your country.