Letters of Credit – Checklist and Guide for Export Sales Executives

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SITPRO has produced a set of three Letters of Credit Checklist and Guides for ImportersExporters 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 (www.iccuk.net).

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

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

Legal and Administration

Production

Shipping

After-sales service

When Negotiating the Order or Contract with the Customer

Do you need to use a letter of credit?

Documentary collection

Open account

Advance Payment

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:

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

Price

Insurance

Production and Despatch Schedules

Presentation

Delivery to Customer

The Letter of Credit

Detail – But Important

Ensure these detailed but vital points are settled before concluding discussions -you can save problems with discrepancies later.

Disclaimer

Whilst every effort is made to ensure that the information given herein is accurate, SITPRO Ltd. accepts no legal responsibility for any views expressed or implied or for any errors, omissions or misleading statements in that information caused by negligence or otherwise.

UCP600 contains the rules for the use of letters of credit. Where there are any inconsistencies with this guide, UCP600 will prevail.