BANGKOKTRADERS LETTER OF CREDIT THINGS TO WATCH OUT FOR WHEN USING L OF C

 

BANGKOK TRADING SPECIALISTS

LETTER OF CREDIT PROBLEMS

PROBLEMS THAT CAN ARISE:The following problems frequently occur when letters of credit are used and can be prevented with due care:Exporters and importers must coordinate the wording of all documents before submission, using the same criteria that the banks apply. Ensure that all the terms used match.The banks use limited discretion in matching the terms and conditions of the L/C against documents presented. There is often little room for judgment. For example, suppose that a letter of credit describes goods as "cocoa butter with a maximum fat content of 15%". However the exporter presents a commercial invoice referring to the goods as "cocoa butter with 12% fat content". Common sense would suggest that this consignment would be accepted; yet some banks will reject the documents on the grounds of a discrepancy in the goods description. Often the letter of credit fails to anticipate an aspect of the transaction. To avoid such problems, exporters need an understanding of the different types of commercial document (transport document, insurance document, etc.) and the things on each document that may matter to a bank in the context of presentation under a letter of credit.For example a common requirement on a letter of credit is for a 'clean on-board bill of lading' - a document supplied by the shipping company attesting that the goods were received in apparently good condition, and were loaded in the ship's hold. However if the goods are hazardous or flammable, they will be put on the deck of the ship instead of the hold, and the bill of lading will be marked 'on deck'. This is not an on-board bill of lading, so the bank can reject the documents. Time limits can be missed when presenting required documents. The parties must be aware of up to three time constraints - the expiry date of the credit, the latest shipping date and the maximum time allowed between dispatch and presentation.Upon first advice of the letter of credit, check that all its terms and conditions can be complied with within the prescribed time limits. If the letter of credit calls for documents supplied by third parties, make reasonable allowance for the time this may take to organize. After dispatch of the goods, check all the documents both against the terms of the credit and against each other for internal consistency.

DUBIOUS BANKS:There are good and bad banks around the world so be careful and have your bank check out the reliability of any bank the customer may wish to use. Such places at Nigeria etc are reknown for having bad banks so use reputable banks.