Financial SITPRO

International Trade Guides

Letters of Credit
Checklist and
Guide for
Export Sales
Executives

UCP 600 Edition

Revised - July 2007
 Letters of Credit
Checklist and Guide for Export Sales Executives
SITPRO has produced a set of three Letters of Credit Checklist and Guides for Importers,
Exporters and Export Sales Representatives. The checklist designed for importers is to be used
by purchasing staff when applying to local banks for letters of credit. The exporter's guide is
intended primarily for use in export sales and shipping departments. We strongly recommend
you provide your customers with copies of these guides to back-up your own discussions with
them.

This checklist is intended to help export sales representatives establish a letter of credit with the
customer that is clearly understood. It also refers to less secure methods of payment and other
responsibilities assumed on overseas visits. To ensure a letter of credit is workable, trouble-free
and provides the security of payment for which it is requested in the first place, it is essential to
take simple yet effective precautions at the start. Working through the checkpoints set out in the
various sections of the guide will help reduce discrepancies and associated unplanned costs.

Successive surveys by SITPRO and others have shown that well in excess of fifty percent of
documents presented by exporters to banks for payment under letters of credit are rejected on
first presentation. This can cause expensive delays for both the exporter and the importer and
may even result in a lesser payment or no payment at all. A great many of those rejections could
be avoided if more care was taken to ensure that the documents called for in the credit are
properly completed.

The SITPRO Letters of Credit Checklists and Guides are designed to minimise unnecessary
costs and risk when trading on the basis of letters of credit. They are aligned with and based on
interpretation of Uniform Customs & Practice for Documentary Credits (UCP), produced by the
International Chamber of Commerce (ICC). The current revision, UCP 600, is available from ICC
UK ([Link]).

Any letter of credit requirements which are still not clear should be referred to your bank for
clarification without delay.

2 SITPRO Financial Guide: Letters of Credit - Checklist and Guide for Export Sales Executives
Preparation for Negotiations
In order to ensure you have all the information necessary for negotiating a sales contract you my
wish to consider the following points:

Financial and credit management

• Individual customer credit limits, both "in house" and credit insurer if applicable - use of credit
insurance should never be revealed to customers
• Efficiency of local banking system and customers' situations
• Methods of payment and terms, if other than letters of credit
• Acceptable currencies of sale
• Exchange control regulations and delays in transfers
• Import licence procedures

Legal and Administration

• Terms and conditions of sale
• Agency or distribution arrangements
• Retention of title
• Protest re unaccepted/unpaid bills of exchange
• Consignment stock: restrictions on repatriating unused stock
• Product liability insurance
• Situation re counterfeit supplies
• Settlement of disputes (jurisdiction, arbitration)

Production
• Delivery periods on standard items
• Delays in particular items
• Customer preference for "non-standard" quantity packing
• Pre-shipment requirements
• Third party suppliers and/or sub-contractors

Shipping
• Methods of transport available: direct, transhipment, multimodal
• Frequency of departures
• Approximate costs of alternative methods/routes
• Any complaints re previous shipments
• Type of packing
• Correct Incoterms 2000 term according to contract/transport mode
• Optimum delivery point
• Goods insurance
SITPRO Financial Guide: Letters of Credit - Checklist and Guide for Export Sales Executives 3
• Normal documentation
• Special documentation requirement such as…
• Shipped on board or flight date
• Shipment "on deck"
• "Claused" transport documents, and which clauses
• Delays for consular work or inspection formalities

After-sales service
• Local technical ability
• Spare part stocks

When Negotiating the Order or Contract with the Customer

Do you need to use a letter of credit?
• You may wish to do so: for some new customers; as security for unusually large amounts; or
in developing countries where it may be essential to obtain an import licence and allocation of
foreign exchange
• If a letter of credit is not needed, there are three other options: documentary collection open
account and advance payment

Documentary collection
• If your payment terms are based on documentary collection, you should consider:
• Local interpretation of "sight", e.g. after vessel's arrival
• For term payments, bills of exchange to be accepted promptly? Protest action
considered?

Open account
• Due date of payment is when funds are to be in the exporter's designated bank account, not
payment locally
• Should documents be sent by courier instead of airmail?
• Avoid additional payment delays due to banking weekends - such as with the Middle East

Advance Payment
• Payment is expected by the exporter, in full, prior to the goods being shipped

Preparation for Letters of Credit

Where local regulations require, or where the exporter insists on a letter of credit, the following
points should be discussed:
• The credit (irrevocable, even if there is no indication to that effect) may need to be confirmed
by a major bank in the UK if political and/or economic conditions are considered a risk

4 SITPRO Financial Guide: Letters of Credit - Checklist and Guide for Export Sales Executives
• If unconfirmed, which local banks are acceptable as openers ("Issuing Bank"), bearing in
mind a customer will wish to use his own bank
• Currency of payment
• Where payable, and whether paid immediately or after an agreed period. Clearly payment in
the UK "at sight" is best, but the customer may want time to pay. Avoid credits payable
outside the UK and requiring drafts drawn on the Applicant
• Who pays bank charges abroad and in the UK - this point is often overlooked
• Expiry date of the credit must allow time for production, shipment and presentation of
documents to the banks
• Place of presentation of documents: any bank; a specified Nominated bank; or Issuing bank
(UCP 600 Article 6)
• If including transport documents as part of the documents presented UCP 600 permits a
maximum of 21 calendar days after shipment for presentation, unless stipulated otherwise
in the credit - the customer may prefer less, you may require more, but it must be made
clear in the credit (Article 14(c))

In order to represent the sales contract properly, complete the bank application form with your
customer, watching for points in the following list. Take a copy of the form to check against the
credit when your company receives it.

Note: The L/C should be kept simple and refer to rather than recreate the sales contract. For
example, it is preferable to state, “goods provided as per sales contract [number]” rather than
reproduce the full goods description.

General
• All name and address details complete and correct
• Instructions given for confirmation where required
• Instructions as to preferred Advising bank in the UK - this may be determined by
correspondent bank relationships, despite any exporter preference
• A credit, however available, can under UCP 600 be available with any bank - this does
not restrict you as the exporter to presenting documents to the Advising bank for
settlement
• Presentation of documents in UK unless otherwise arranged
• Correct indication whether credit specifies payment, deferred payment, acceptance or
negotiation

Price
• Delivery Terms (e.g. FCA Barking ICD - Incoterms 2000; CFR Mombasa - Incoterms 2000)
• Currency
SITPRO Financial Guide: Letters of Credit - Checklist and Guide for Export Sales Executives 5
• Tenor: period for payment (e.g. "on sight"; 60 days from date of transport document)
• Extra costs to be added to basic price such as freight, insurance, inspection, consular
formalities, certificates of origin
• Final value in selected currency including extra costs
• Variations for value or quantities (e.g. "maximum £XXX"; "10% more or less")
• Allocation of bank charges in your customer's country and elsewhere
• If the credit is in the currency other than sterling, check the customer understands about
reimbursing banks charges

Insurance
• It is recommended that you and your customer should pin down in the contract of sale
exactly what insurance provisions are needed
• Can you obtain insurance cover for the risks specified?
• Does your quotation cover the cost of insuring the risks specified?
• Can you provide the right type of insurance document, for example if the credit calls for a
policy rather than a certificate? Cover notes are not acceptable
• If your customer has not asked you to arrange marine insurance on Incoterms CFR or
CPT sales, for example, have you considered obtaining "seller's interest" or other CPT
suitable cover for your own account, if available?

Production and Despatch Schedules

• Latest shipment date and subsequent credit expiry date should allow for:
• Production and packing;
• Inspection, if required and obtaining any inspection certificate or clean report of findings;
• Obtaining other certificates (e.g. certificate of origin);
• Chamber of Commerce and/or consular work;
• Shipment against availability of transport;
• Documentation including obtaining shipping documents;
• Whether partial shipments are involved; and/or
• If the credit or import licence expiry dates are already determined by import regulations,
can the production and dispatch schedule be met on time?

Presentation
• Will you need more than UCP 600 maximum allowance of 21 days for presentation of
documents after date of transport document due to particular requirements?
• Where is the bank that the documents will have to be presented to obtain settlement (i.e. UK
or abroad)?
• Bear in mind that with presentation abroad, the exporter carries risk of loss/delay in post
and has less time for correction of discrepant documents

6 SITPRO Financial Guide: Letters of Credit - Checklist and Guide for Export Sales Executives
Delivery to Customer
• What type of transport will be used? Match the type of transport documents to the method
and delivery, particularly where container or groupage services are to be used
• For containerised goods:
• Agree places of despatch and delivery (ignoring ports)
• Avoid the terms "shipped" and "marine/ocean bill of lading" (especially "marine" or
"ocean" for container or through transport documents)
• For all methods allow the use where necessary of transhipment, "on-deck" shipment and
"claused" transport documents (agree "clauses")
• Transhipment: the prohibition of transhipment is inappropriate
• Under UCP 600 Articles 19-24 (the transport articles), transport documents may indicate
goods may or will be transhipped provided the entire carriage is covered by one and the
same document, even if the credit prohibits transhipment
• "Claused" transport documents: UCP 600 Article 27 states that banks will only accept clean
transport documents (i.e. bearing no clause or notation expressly declaring a defective
condition of the goods or packaging)
• "On deck": a clause stating goods may be loaded on deck is acceptable, but it must not state
that goods are or will be loaded on deck (UCP 600 Article 26(a))
• Transport documents may be issued by any party, including freight forwarders, other than a
carrier, owner, master or charterer (see UCP 600 Article 14(l))

The Letter of Credit

• As a matter of routine, the vast majority of credits are communicated by teletransmission
using the inter-bank SWIFT system
• Where a credit is issued by mail you may want a pre-advice

Detail - But Important

Ensure these detailed but vital points are settled before concluding discussions - you can save
problems with discrepancies later.
• Agree what documents the credit should call for
• It is recommended not to include the underlying sales contract, pro forma and the like
• The documents called for should fulfil the requirements stated in the sales contract
• Avoid negotiable transport documents (documents of title) where a non-negotiable transport
document fulfils requirements
• Prevents goods (which are delivered at destination to a named consignee) from being
held up waiting for the arrival of documents
• Ensure documents relate clearly to supply of the goods ordered - if no-charge goods or
samples are to be sent at the same time, it must be stated in the credit

SITPRO Financial Guide: Letters of Credit - Checklist and Guide for Export Sales Executives 7
• Keep documents and the numbers of each to a minimum to SITPRO Guides
Financial
avoid greatly increased risk of mistakes, rejection of the Letters of Credit
Checklist and Guide for
documents by the bank and consequent delay in payment and Export Sales Executives
delay in the customer receiving documents to clear the goods
• Be sure the company can supply the documents and comply
with the terms proposed by the customer, exactly as specified in
the credit
• Check when completing the bank's application form with your
customer (or make sure they will do so later) that any
unnecessary instructions pre-printed on the form are deleted,
such as:
• "Documents produced by reprographic means not permitted"
• "Short form bills of lading prohibited"
• "Partial shipments prohibited"
• "Transhipment prohibited"
• "Bills of lading indicating goods may/will be carried on deck
prohibited"
• "Shipped on board/marine ocean bills of lading" (necessary
for port-to-port shipments, but restrictive)
• Exchange the names, full titles, full addresses, telephone, email
and fax details of the people in the customer's company, and
your own, who are in charge of letter of credit shipments. Where
you are not completing the form with your customer, make
certain they have the full and exact spelling of your company
name and address for the credit, and the correct description of
the goods without unnecessary detail
• Even where you do complete the application from with the
customer, give them a copy of SITPRO's Letters of Credit
Checklist and Guide for Importers to use when applying for SITPRO
Simplifying International Trade
further credits - this will help to keep them as simple as possible
7th Floor
• If in doubt it is important to refer back to your company before Kingsgate House
making any letter of credit commitment. Ensure before leaving 66-74 Victoria Street
London
that you have noted the international direct dialling code, the SW1E 6SW

time zone for each company you will be visiting, and important Telephone: +44 (0)20 7215 8150
telephone, email and fax details, with individual home numbers Fax: +44 (0)20 7215 4242
Email: info@[Link]
as necessary Website: [Link]

SITPRO Ltd. is a company limited by guarantee

Registered in England & Wales No: 4188890

© Copyright SITPRO Ltd. 2007

This guide may not be republished, in full or in
part, without SITPRO’s prior permission

UCP600 contains the rules for the use of letters

Disclaimer: Whilst every effort is made to ensure that the information given herein is accurate, SITPRO Ltd. accepts no legal responsibility for any of credit. Where there are any inconsistencies
views expressed or implied or for any errors, omissions or misleading statements in that information caused by negligence or otherwise. with this guide, UCP600 will prevail.