Why lc is required

Even a discrepancy as small as a missing period or comma can render the document invalid. Thus, the earlier in the process the letter of credit is examined, the more time is available to identify and fix the problem.

This is another common reason why LCs fail. Letters of credit are about documents and not facts; the inability to produce a given document at the right time will nullify the letter of credit. And if so, have the LC amended before shipping the goods.

Learning the Terminology of Exporting. They are essentially 'shipping terms' that set the parameters for international shipments. They specify points of origin and destination and determine which party is responsible for shipping costs.

They also indicate which party assumes the cost if merchandise is lost or damaged during transit. See their website at www.

The current version of these rules is UCP You can find more information and buy a copy of these rules from the International Chambers of Commerce website iccwbo. This one-day seminar gives a comprehensive overview of LCs and their application in mitigating payment risk Credit Ratings form major credit agencies on different counties of the world to help you assess international risk This glossary is a basic guide to terms used in international trade transactions and letters of credit Seminar: Letter of Credit.

Country Ratings. If the draft states the amount in both figures and words, these amounts must be the same, and the amount must agree with the commercial invoice. As stipulated in the UCP, letters of credit should not be issued requiring drafts to be drawn on the applicant.

All corrections or alterations made to a draft must appear to have been authenticated by the drawer, the party creating the draft. If corrections or alterations to the draft are not acceptable, the issuing bank should make this known in the letter of credit.

If a letter of credit LC merely requires an invoice, you might be surprised by the type of invoices that are acceptable to present. When the letter of credit requires a commercial invoice, a document titled invoice will meet the terms of the LC. In addition, tax, customs and consular invoices are all acceptable documents. The old rule of thumb required that the name and address of the beneficiary and applicant on the invoice had to exactly match the LC.

No deviation was acceptable. Now the invoice needs to be issued by the beneficiary named in the LC and made out in the name of the applicant. In fact, those numbers can differ from the LC. In the past, most banks required that the merchandise description on the invoice be identical to the description shown on the LC; no deviation was allowed.

Now the rules have been eased. It is no longer necessary to have a mirror image of the description on the invoice. Details of the merchandise can appear in multiple areas of the invoice and, when pulled together, correspond to the letter of credit.

If the LC authorizes partial shipments, only what is actually shipped needs to appear on the invoice. It is also acceptable if the invoice displays all the merchandise on the LC but identifies what was shipped. The invoice must clearly state the value of the goods as well as the currency and any unit price shown in the LC.

If required by the LC, any discounts or deductions also must appear on the invoice. Costs related to the term must be included on the invoice and be within the value of the LC. Costs exceeding the LC value are unacceptable. Most times the LC will require a signed commercial invoice. However, if the LC only requires a commercial invoice, the invoice does not have to be signed or dated. In addition, the invoice cannot cover merchandise not described in the LC, such as samples.

Banks have always allowed a tolerance of plus or minus five percent for the quantity of the goods. However, the tolerance does not apply if the LC states that the quantity cannot be exceeded or reduced or if it states a number of units required. Under no circumstances can the value of the LC be exceeded.

In the case of prohibited partial shipments, the invoice value may contain a tolerance of minus five percent provided that the quantity is shipped in full. The words ocean or marine do not have to appear on the transport document to make it acceptable, but it must indicate that a port-to-port shipment has been made. Charter party bills of lading for port-to-port shipments are covered by Article All transport documents need to show the number of original bills of lading issued. Bills of lading do not have to be marked original to be acceptable.

The carrier or multimodal transport operator must then be identified either at the signature line or elsewhere on the face of the bill of lading. If the master or captain signs the bill of lading, the signature must be identified as either the captain or master. However, if an agent signs on behalf of the captain or master, they must be identified as an agent and the name of the captain or master must be identified.

The name of the carrier and the multimodal transport operator does not need to be shown. If a pre-printed shipped-on-board bill of lading or charter party bill of lading is issued, the date of issue will be considered the ship date unless there is an additional dated on-board notation.

If that is the case, the dated on-board notation will be considered the ship date, even if this date is before the issuance date. The same will apply to a multimodal transport document where the issuance date is considered the on-board date or the date of dispatch. If there is a separate dated notation, that will be considered the date of shipment. The letter of credit will identify a port of loading. However, it may also be shown in the field identified as the place of receipt. If this is the case, two things must be clear:.

The letter of credit will also identify a port of discharge. However, it is possible that it could be in the field identified as the place of final destination. If this is the case, two things again must be clear:. As a result, the port of loading and the name of the vessel would not have to be part of the on-board notation. However, the port of discharge may be shown as the geographical area. It is acceptable if the endorsement indicates that it is made for or on behalf of the shipper.

Transshipment occurs when goods are unloaded from one vessel or mode of transport and reloaded onto another. This would occur from the time the goods are put on board the vessel otherwise known as the port of loading to the final destination or port of discharge as required in the letter of credit. With multimodal shipments, if the transport document covers the entire voyage and shows that a transshipment has occurred, this will be acceptable even if the letter of credit prohibits transshipments.

When partial shipments are prohibited and the letter of credit allows shipment from more than one port, it is acceptable if multiple sets of original bills of lading or transport documents are presented showing a variety of acceptable ports of loading. This is, of course, if the goods are shipped on the same vessel and the voyage ends at the same destination.

If multiple set of bills of lading or transport documents are presented and they have different shipment dates, the latest shipment date should be used for any presentation timeframe and for determining if the documents comply with the latest ship date allowed for in the letter of credit.

A bank will consider it a partial shipment if more than one vessel or other means of transport is used to move the goods, even if done on the same day for the same destination. A clean bill of lading or multimodal transport document is one that does not contain a notation to the effect that either the goods or the packaging are defective. The merchandise description on the bill of lading or transport document does not have to be exactly as stated in the letter of credit.

The description can be more general as long as it is not inconsistent with the letter of credit. Non-negotiable copies of these documents, which bear a correction or alteration, do not need to be authenticated. The letter of credit should require freight to be either prepaid or collect, and the bill of lading must reflect this.

If the letter of credit states that no charges in addition to the freight are allowed, the bill of lading cannot show charges in addition to the freight that may or might be incurred. This includes costs with the loading or unloading of the goods. Fees that could be charged as a result of a delay in unloading goods or delays after the good are unloaded such as a fee for the late return of the container are not considered an additional cost.

Should a bill of lading or multimodal transport document indicate that the goods in the container are covered by more than one bill of lading or transport document, all bills of lading or transport documents related to that container must be presented for the container to be released to the consignee. This is only acceptable if all the bills of lading or transport documents are presented together under the same letter of credit. Air bills of lading are covered by Article 27 of the UCP If the letter of credit LC should require a full set of originals, this also satisfies that requirement.

The identity of the party signing the air waybill and the name of the carrier must be clearly stated. If the signor of the air waybill is an agent, it must be clearly stated that they are an agent, and the name of the carrier that they are signing on behalf of. However, if the LC allows for either a house air waybill or freight forwarders air waybill, then the freight forwarder can sign the document and be identified as the freight forwarder and not the carrier or an agent for the carrier.

If the LC requires the date of dispatch be shown on the air waybill, this information must appear someplace on the document. The date of dispatch is considered the date of shipment. If the air waybill shows the flight date or flight number but is not required by the LC, that information will be disregarded.

The airport of departure and destination must appear on the air waybill as required by the LC. It is not a discrepancy if the IATA code for the airport is used instead of the full name of the airport. If the LC allows for shipment to or from a geographical area or region, the actual airport used within that area or region must be shown on the air waybill.

Air waybills are not documents of title. If the LC does not indicate a notify party, the air waybill does not need to show a notify party or, if it does, any notify party will be acceptable. The UCP defines transshipment as the unloading and reloading of merchandise from one airplane to another. This would occur during the course of carriage from the airport of departure to the airport of arrival. In addition, if the letter of credit prohibits transshipment, it is allowed if the entire voyage is covered by one airway bill.

When the LC prohibits partial shipments and multiple air waybills are presented covering shipment from one or more airports of departure, no discrepancy should be called provided they cover the shipment on the same plane and the same flight and will arrive at the same airport of arrival.

When more than one air waybill is presented, it may be possible multiple ship dates will appear. If this is the case, the latest date of shipment will be considered the actual shipment date and would be used for the calculation of any presentation time period.

When shipment occurs using more than one plane—even if the planes leave on the same day for the same destination—it will be considered a partial shipment. If there is a notation on the air waybill that indicates the goods or the packaging are defective, a bank will call a discrepancy. If the goods are described in more general terms but are not inconsistent with the LC, it is acceptable.

Should a correction or alteration appear on the air waybill, either the carrier or their agent must authenticate it. The LC will typically indicate that the air freight is to be either collect or prepaid, and the air waybill must reflect this. If the credit stipulates that it does not allow any cost in addition to the freight charges, the air waybill must not show any additional charges.

This includes any references that would indicate the cost of loading or unloading the merchandise. It is acceptable, however, if there is a clause stating that there could be a fee charged if there is a delay in unloading the goods.

If the air waybill has a place where freight charges, either prepaid or collect, may appear, it is acceptable if the LC requires freight prepaid for those charges to appear in the prepaid section of the air waybill.

If the LC requires freight collect, it would be acceptable for those charges to appear in the collect section of the air waybill. The requirements for road, rail or inland waterway bills of lading are very similar. If the credit requires one of these documents, the document that is presented will be accepted if the following conditions are met:.

The letter of credit may require a full set of the rail, road or inland waterway transport document. In these cases banks will accept the transport documents presented as a full set. However, if the transport document specifies how many documents were issued, then that number needs to be presented in order to comply with the full set requirement.

Again, the UCP defines transshipment as the unloading and reloading from one means of conveyance to another using a different mode of transport, during the course of carriage, from the place of shipment to the place of destination as required by the LC. That document clearly specifies that transshipment has or might take place, but that document also clearly specifies that it cover the entire shipment using the same mode of transport.

This document would be considered acceptable. An acceptable post receipt would be one that has been stamped and dated at the place of shipment required by the letter of credit. This date is considered the shipment date. An acceptable courier receipt would be one that shows the name and signature of the courier service.

If the credit specified a particular courier service, that service obviously would have to be used. The courier receipt must also be dated and this date is considered the shipment date. Both of these documents would also have to comply with any other conditions specified in the letter of credit to be acceptable.

Before a bank will accept a transport document issued by a freight forwarder, the document must meet certain criteria. First the transport document must show the forwarder as either the carrier or as a multimodal transport operator. In addition, the forwarder has to sign or authenticate the document as either the carrier or as the multimodal transport operator. If, however, the document shows the actual name of the carrier or multimodal transport operator, the freight forwarder must sign or authenticate the document on behalf of the carrier or operator as their named agent.

If the bill of lading indicates that the goods are loaded on deck or will be loaded on deck, the document is not acceptable.

The buyer and seller information must correspond exactly to the description in the letter of credit. Unless the letter of credit specifically states otherwise, a generic description of the merchandise is usually acceptable in the other accompanying documents.

This is also a document that is used for custom clearance and payment of duties. It should have the correct currency designation and made out in the same currency as the letter of credit. When authenticated it becomes a document of title. The documents evidence control of goods. Other Transport Documents: Non-negotiable seawaybill; Charter party bill of lading; Multimodal transport document; Air transport document; Road, rail, or inland waterway transport document; Courier and post receipt.

A packing list is usually requested by the buyer from the seller to assist the buyer in identifying the contents of each package or container that is being exported. It must show the shipping marks and number of each package. Though a Packing List is not usually required to be signed, some countries and their customs authorities may want the packing slip to be signed and stamped. A certificate of origin is a document that provides evidence of the country-of-origin of the imported goods.

It is used in determining any preferential custom tariff, duty on goods and whether or not goods originate in a country against which the importing country has trade restrictions. The certificate should be consistent with and identified with the other shipping documents by shipping marks and numbers, and must be signed by the appropriate authority.

Unlike transport and insurance documents, Letter of credit rules UCP do not cover certificate of origin under any specific articles. An inspection certificate evidences that goods were inspected and details the result of the inspection. It is a preventative measure against possible fraud and a means of protecting the buyer against receiving substandard or unwanted goods.

Inspection is generally carried out by a third party reputable firm which is independent. As per these trade terms the seller contracts for insurance cover against the buyer's risk of loss or damage to the goods during carriage.

The insurance document should cover the risk specified in the Documentary Credit.