Letter of Credit Checklists and Guides are designed to minimize unnecessary costs and risk when trading on a letter of credit basis and are aligned with the 1993 revision of the ICC Uniform Customs and Practice for Documentary Credits (UCP500).
Working through the checkpoints set out in the various sections will help reduce discrepancies; associated unplanned costs; and the risk of losing the whole basis of secured payment for which the credit was established in the first place.
Step 1. Clause 40A
Check that the type of credit gives you the level of payment security you required. It may not be confirmed by a bank and may even be revocable i.e subject to cancellation without your knowledge. Credits issued under UCP 500 are irrevocable unless otherwise stated.
The recommended form of document credit is IRREVOCABLE as cannot be cancelled or amended unless all parties give their agreement
Step 2. Clause 42C
Check that you will be paid at the time you planned. The credit may specify payment some time after documents and/or drafts have been accepted by the paying bank.
The recommended draft is at SIGHT as Bill of exchange payable immediately upon presentation. However, in Indonesia although the draft is at SIGHT the paying bank will only settle the payment until got disbursement from issuing bank in the buyer’s country.
Step 3. Clause 59 and 50
Check that the spelling of your company and buyer name and address are both correct. If the name of your own company is not correct then even if you alter it on your invoice heading to match, the bank may not agree to credit the payment to your account; this point should be clarified with the bank.
Step 4a. Clause 31D
Check that you can produce the goods, ship them, assemble the documents required and deliver them to the bank, all by the expiry date and within the transport document time limit. The bank has no discretion under UCP 500 and is not in a position to pay after expiry dates, nor if the documents are not completely in order.
The following check list will help you to determine how many days you need to prepare all documents before deliver them to the bank:
- Production and packing.
- Inspection -if required.
- Shipment -check sailing frequencies.
- Chamber of Commerce or Ministry of trade to apply Certificate of Origin
- Obtaining the inspection certificate
- Assembling checking shipping documents
- Presenting them to the bank
In term of place of expiry, we recommend would be in INDONESIA
Step 4b. Clause 48
Check the presentation period. To apply certificate of origin at the chamber of commerce or Ministry of Trade, obtaining the inspection certificate, assembling checking shipping document, and presenting them to the bank must be completed within 21 days of the date of shipment evidenced by the transport document in order to present documents in time -unless the credit specifies a different period which could be less. (Note: the validity date stipulated in the credit must be adhered to. It is not overridden by the 21 day rule although provided it still falls within the validity of the credit it might well be in your interest to ask for "in excess of 21 days" when arranging for the establishment of the credit).
Step 5. Clause 71B
Check that only those bank charges you agreed to pay are stated to be for your account.
We recommend that clause 71B state : ALL BANKING CHARGES OTHER THAN THOSE OF THE ISSUING BANK ARE FOR BENEFICIARIES ACCOUNT
Step 6. Clause 32B
Check the value of the credit. The amount should be the same with amount at the agreed proforma invoice or in the agreed sales contract
Step 7. Clause 45A
Check the terms of delivery the same as you quoted. (eg. FOB, CNF, CIF)
Step 8. Clause 43P
Check with your buyer, are partial shipments prohibited or not. Normally, the issue of partial shipment would be stated in the sales contract and both seller and buyer should agree upon. If possible “partial shipment” is allowed to anticipate if there is something wrong in the production we are still able to send some of the goods.
Step 9. Clause 46A
Check shipping document required. Ensure that:
b. They are consistent - for example, the shipping marks, quantities/weights, transport details, references, and in general terms the descriptions, must tally so that they clearly relate on their face to the same shipment.
c. The description of goods is correct. They may be described in general terms, not inconsistent with the credit, in all documents except the invoice, where the exact credit description must be reproduced. Credit details should preferably not be repeated in full in transport documents and some carriers will refuse to enter more than their minimum necessary information. This may cause a discrepancy if the information given does not relate sufficiently to the credit or other documents.
d. Documents are authenticated where necessary - import regulations in some countries still make it essential to sign manually and possibly witness documents and any alterations or additions to them. (Note UCP 500 Article 20(d).
e. Any restrictions in the credit are catered for, for example if short form bills of lading are prohibited.
Step 10. Clause 43T
Clause for Transshipment should be “ALLOWED” as most of the small vessel transit in Port Klang (Malaysia) or Singapore or Hong Kong or Taiwan and continue the journey by using the bigger vessel (mother vessel) to the destination countries.
Step 11. Clause 44C
See the explanation step 4a for clause 31D. Exporter should make sure that he/she can produce the goods on time to avoid the delay in shipping out the goods.
Step 12. Clause 41D
The recommended description for “available with/by” is “ANY BANK BY NEGOTIATION”. Hence, exporter can negotiate/present the shipping document in any bank and there is not restriction.
Step 13. Clause 44A
Make sure that the loading on board/dispatch is the same with what stated at the agreed sales contract
Step 14. Clause 44B
Make sure that the “For transport to and mode of transport” are the same with what stated at the agreed sales contract
source: various sources included owned experiences.
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