Your company, no doubt, uses letters of credit as a form of payment protection with certain of your commercial credit customers. You can make yourself an invaluable member of the credit department by making sure that every "i" is dotted and every "t" is crossed for each document involved in a letter of credit. Here's how:

• Make sure the letter of credit matches the transaction. The sales contract may require delivery and shipment within a certain time frame and by a certain mode of transportation. Make sure the letter of credit does not prohibit transshipment (on several vehicles) or partial shipment.

• Make sure the letter of credit states that it is irrevocable. This should be stated on the face of the letter of credit. If it isn't, the letter of credit will be considered revocable under law, and the issuing bank can cancel at any time. The letter of credit should contain language from the issuing bank saying, "We hereby open our Irrevocable Letter of Credit number xx." The number and statement "Irrevocable Letter of Credit" should also appear above the text of the letter.

• Pay close attention to time frames. The letter of credit must have an expiration date. This is the last date you can present documents for payment. However, there are often other relevant dates, and these must match the actual transaction. For example, you may have a specific date for shipping, or there may be a stipulation that support documents must be presented a specific number of days after the bills of lading are issued.

• Make sure the merchandise described in the letter of credit matches the description on the invoice. Letters of credit are completely dependent on documentation. If the information about the merchandise written on the invoice does not match that written on the letter of credit, it could be refused--whether or not the merchandise you shipped was correct.

• Make sure the points of destination match, and if these points change, make sure the letter of credit is formally amended. Remember, under the standard of strict compliance, courts require conformity to the smallest detail. It is essential for such details as the spelling of names and descriptions of goods to match on both the letter of credit and the support documents. Even the matter of whether abbreviations are used on both documents is critical. Therefore, be particular about every detail.

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006.

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Irrevocable - Good News! Per UCP600 all LCs are "irrevocable", November 1, 2011

By danielle - See all my comments

Comment- any LC issued under UCP600 is automatically “irrevocable”, the great news is… Your customer cannot make any changes to the LC without your consent. Truly the Beneficiary/Seller/Exporter is supposed to “accept” the amendment once received, sure if you make a shipment and prepare docs for payment it is “accepting”, but best to “accept or reject the amendment”. Any LC Advised via SWIFT is automatically governed by the UCP which means again it’s “irrevocable”.

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