How to protect yourself as an exporter when working with a letter of credit against various risks?
Letter of Credit Control Period
Step 1 - Irrevocable: Irrevocable means that the issuing bank cannot amend or cancel the letter of credit without the written consent of the beneficiary. Ac per UCP 600 all letters of credit opened are irrevocable unless otherwise explicitly stated in the letter of credit.
Check and Verify:
make sure that the letter of credit issued subject to the latest version of uniform rules of documentary credits, UCP 600.
make sure that there is no indication in the credit that letter of credit is “revocable.”
Step 2 – Date of Issue, Latest date of Shipment and Date of Expiry: Each letter of credit should contain a date of issue, latest date of shipment and date of expiry.
Check and Verify:
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.
make sure that you can make shipment before the latest date of shipment.
make sure that you can present documents before the expiry date of the letter of credit.
Verify the expiration location of the letter of credit. In order to do that you should check following parts of the MT 700 swift message. “Field 31D: Date and Place of Expiry” and “Field 41a: Available With ... By ...”
If the letter of credit expires at the counters of the issuing bank, or in the buyer’s country, you may require extra time for forwarding of documents.
Step 3 – Verifying Issuing Bank : According to the letter of credit rules non-bank organizations could issue letters of credit, which leaves exporters vulnerable to fraud risk originated from the non - bank letter of credit issuers.
Check and Verify:
Make sure that the issuing bank is a valid and trustworthy bank with whom you are comfortable and familiar with.
Make sure that advising bank is a reputable bank located in your country.
Make sure that you have received the letter of credit through advising bank in your country in swift format.
Total 7 pages and 20 critical points that you need to control of each letter of credit
These web pages offer you more than a simple letter of credit check list. You can find explanations, points of consideration and reference links for further learning. On this page you will find Irrevocable Letter of Credit, Date of Issue, Latest Date of Shipment and Date of Expiry, Verifying Issuing Bank.
A fraudulent Russian company registered himself to the swift network by acquiring a swift address. They get the BIC code or swift address very similar to the one of the well-known European Bank’s Russian branch. Their company name also very close to that bank. This Russian company starts to send letters of credit on behalf of the English importer. Goods will be directed to the Kazakhstan via rail transportation. Exporters ship their orders without controlling the issuing bank. Goods have been cleared from the Kazakhstan border without leaving any trace. The issuing bank sends MT 734 Advice of Refusals based on valid or alleged discrepancies. Applicants do not waive the discrepancies and do not respond to exporters call after a while. Lots of companies lost their money for this letter of credit trap just a couple of years ago. As an exporter always you have to check the issuing bank. If you do not no one will.