International Trade Guides
Letters of Credit Checklist and Guide for Importers
UCP 600 Edition Revised - July 2007
Letters of Credit - Checklist and Guide for Importers
SITPRO has produced a set of three Letters of Credit Checklist and Guides for Importers, Exporters and Export Sales Representatives. The checklist designed for exporters is intended primarily for use in export sales and shipping departments. The export sales representative's guide advises on credits and some of the other responsibilities assumed on overseas visits. We strongly recommend you provide your customers with copies of these guides to back-up your own discussions with them. This checklist is specifically to assist importers: detailing the recommended procedures to be followed, including an item-by-item reference to completing a letter of credit application form. To ensure a letter of credit is workable, trouble-free and provides security of payment, 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. The simple specimen form included in the guide, while only an example, will not be found to be significantly different from those used by the banks themselves. 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.
SITPRO Financial Guide: Letters of Credit - Checklist and Guide for Importers
Arranging for the Letter of Credit
When negotiating the order or sales contract with your supplier, you should only be thinking of using a letter of credit if your country's exchange control regulations require it or if your supplier insists on it as the means of payment. Otherwise, you should try to avoid the procedure because it can quite often cause problems for both your company and your supplier. If a letter of credit is unavoidable • Check with your bank that they are prepared to issue a letter of credit for the value of the intended transaction on the terms of settlement proposed (i.e. "at sight" or at a later date) • Check whether it is to be confirmed by a bank in the Beneficiary's (supplier) country Make sure that you • Have exchange control approval for the importation, if required • Will be able to obtain any necessary import licence • Can pay import deposits and Customs duty on time • Check whether forward exchange cover or a foreign currency account is advisable for credits not in your currency • Consult other departments in your company to ensure that the terms of the sales contract and credit meet their requirements Obtain a copy of your bank's application form for opening a letter of credit to see how your supplier's instructions can best be entered onto the form • In the absence of pre-arranged instructions, try to discuss the sales contract and any requirements for the credit and complete the form with your supplier's representative. If a representative cannot visit, then read the sales contract very carefully and...