Letter of credit terms

1. Letter of Credit of the Issuing Bank

The issuing bank of the letter of credit is the bank that opens the letter of credit at the request of the applicant (importer).

The letter of credit is a conditional payment guarantee for the issuing bank. After the letter of credit is opened, the issuing bank has a pre-emptive payment responsibility. Therefore, the credit and payment ability of the issuing bank have become a key issue. Therefore, it is necessary to understand the credits of the issuing bank.

2. Date of issuance of the letter of credit (Issuing Date)

The date of issuance is the date on which the issuing bank opens the letter of credit. The date of issuance is generally expressed as “Date of Issue”.

The date of issuance must be clearly indicated in the letter of credit. If there is no Date of Issue in the letter of credit, the date of the power generation (the open credit) or the date of the letter of opening (the letter of credit) is the date of the issuance.

The date of issuance of the letter of credit shall be clear, clear and complete.

It is very important to determine the date of issuance of the letter of credit, especially if it is necessary to use the date of issuance to calculate other times or to determine whether the date of the reminder is after the date of issuance, etc., based on the date of issue.

At the same time, the date of issuance also indicates whether the importer is a letter of credit opened in accordance with the period of the issuance of the business contract.

3. Expiry Date and Expiry Place

The validity period of the letter of credit is the later date on which the beneficiary submits the documents to the bank. The beneficiary should submit a letter of credit to the bank before or on the date of the expiration date.

A valid place is the place where the beneficiary submits the documents to the bank within the validity period. The letter of credit issued abroad generally stipulates that the effective place is in China. If the effective place is abroad, the beneficiary (exporter) should pay special attention to it, and must submit the order before the expiration date (Hong Kong, Macao, New Zealand, Malaysia, etc.) The country or region is about 7 days in advance; the ocean country or region is 10-15 days in advance), so that the bank can send the documents to the bank at a valid place within the validity period.

If the effective location is abroad, it is better to modify it at home.
If the credit does not specify a valid location, the issuing bank should be immediately required to confirm. If the issuing bank does not respond at all times, it shall be deemed to be a valid place in the country.

4. Letter of Credit Applicant (Applicant)

The applicant for the letter of credit is the person who applies for the opening of the letter of credit to the bank (issuing bank) according to the provisions of the commercial contract, that is, the importer.

Applicants for letters of credit, including names and addresses, must be complete and clear.

V. Beneficiary Beneficiary

The beneficiary of the letter of credit is the person designated by the letter of credit to use the letter of credit, that is, the exporter.

The beneficiary of the letter of credit, including the name and address, shall be complete and clear. If there is any error or omission, the bank shall immediately contact the issuing bank to confirm or request the applicant to modify it.

6. Documentary Credit Number

The certificate number of the letter of credit is the bank number of the issuing bank, which must be quoted in the business contact with the issuing bank. The certificate number of the letter of credit must be clear and there are no errors such as changing words.

If the certificate number of the letter of credit appears multiple times before and after the letter of credit, special attention should be paid to whether it is consistent between them, otherwise it should be exchanged for amendment.

7. Currency Code Amount

The currency of the credit amount should be an internationally convertible currency.

If the currency of the letter of credit is an international non-freely convertible currency, the beneficiary may consider whether it is acceptable.

The currency symbol should be the currency standard code of the world countries commonly used internationally.

The amount of the letter of credit is generally written in the international way, for example, one million US dollars is written as USD1,000,000.00.

If the letter of credit has both uppercase and lowercase letters, the uppercase and lowercase are consistent.

If there are multiple letters of credit in the letter of credit, they should be consistent with each other.

8. Description of goods and/or services

The description of the goods of the letter of credit is the description of the name, quantity, model or specification of the goods by the letter of credit. According to international practice, the description of the goods in the letter of credit should not be cumbersome. If the description of the goods is too cumbersome, the beneficiary should be advised to contact the issuing applicant to modify the part of the letter of credit. Because the cumbersome description of the goods causes trouble for the beneficiary to make the order, the description of the goods should be accurate, clear and complete.

In general, the basic content of the goods description of the letter of credit includes the name, quantity, model or specification of the goods.

IX. Documents Requied Clause

The documentary terms of the letter of credit are the types, number of copies, conditions of issuance, etc. of the exchanges that the beneficiary must submit in the letter of credit.

The documents of the letter of credit are consistent and there should be no contradictions.

X. Letter of Credit Price Terms (Price Terms)

The price terms of the letter of credit are the transaction price of the goods stipulated by the applicant (importer) and the beneficiary (exporter) in the commercial contract. Generally, the international price method is used. The commonly used price terms have FOB and landed. Price (CIF or CNF). It should be noted that the price clause should be followed by a “location”.

XI. Letter of Credit (Shipment Date)

The term of the letter of credit is the later period of the beneficiary (exporter) shipment. Beneficiaries should ship before or on the day of shipment (shipping).

The shipping period of the letter of credit shall be within the validity period.

There should be a certain time interval between the date of shipment and the expiration date of the letter of credit, which should not be too long or too short. When the interval is too long, it is particularly likely that the beneficiary will not pay the bill, and the goods have arrived at the port. The importer cannot get the shipping documents and cannot pick up the goods, so that the pressure is reduced. When the interval is too short, the time for the beneficiary to obtain the receipt from the (shipment) shipment to the time the document is submitted to the bank is short, which may cause tension in the delivery time or fail to pay the bill within the validity period. Therefore, the time limit and validity period of the letter of credit should be reviewed according to the specific circumstances. If necessary, the beneficiary should be advised to contact the applicant for the modification.

In general, the interval between the date of shipment and the effective date of the credit is approximately 10-15 days, unless otherwise specified by the credit.

12. Period of Presentation of Documents

The time limit for the delivery of a letter of credit is a period of time in which, in addition to the expiration date, each letter of credit requiring the issuance of a transport document shall be required to be delivered to the bank within a certain period of time after the date of shipment. If this period is not specified, according to international practice, the bank will refuse to accept documents submitted 21 days after the date of shipment, but in any event, the documents must be submitted no later than the effective date of the letter of credit.

Under normal circumstances, the issuing bank and the applicant for issuing the certificate often specify the ten-day, fifteen-day or twenty-day period after the date of shipment as the later period of the delivery, but if the letter of credit has special provisions, the time limit for delivery can also exceed Twenty-one days.

13. Reimbursing Bank (Reimbursing Bank)

The reimbursing bank is the bank designated by the issuing bank in the letter of credit to make payments to the paying bank, the confirming bank or the negotiating bank. It can be a branch of the issuing bank itself, but it is also another bank in a third country (usually an account line). The reimbursing bank is entrusted by the issuing bank to pay on behalf of the issuing bank, and is not responsible for the trial, only relying on the authorization of the issuing bank and the “Reimbursement Claim” or “Understanding Certificate” of the negotiating or payment bank. Payment (Certificate of Compliance) (currently "Understanding Certificate" is generally not required).

The payment by the reimbursing bank is not a final payment. That is, if the issuing bank receives the documents and finds that there is any discrepancy in the documents, the issuing bank or the reimbursing bank has the right to claim the payment from the negotiating bank.

14. Reimbursement Clause

The terms of payment of the letter of credit are the terms of the issuing bank's payment in the letter of credit to the paying bank, the accepting bank, the confirming bank or the negotiating bank. The terms of payment of the letter of credit directly relate to the issue of foreign exchange collection, so it is necessary to ensure that the terms of payment are correct and reasonable. In the case that the repayment terms are complicated and the repayment route is tortuous, the issuing bank should be required to modify it as much as possible.

15. Banking Charges Clause

The letter of credit generally stipulates that the bank fees of the bank or the bank fees of the advising bank, the negotiating bank, etc., shall be borne by the beneficiary.

If the letter of credit stipulates that all bank fees are borne by the beneficiary, the beneficiary pays attention to whether the terms of the fee are reasonable so as to be revised in time to reduce the unreasonable expenses of the beneficiary.

XVI. Validation Clause (Valid Conditions Clause)

Some letters of credit will only come into force under certain conditions. For such a letter of credit that is conditionally effective, it should be checked whether the condition is harsh. The beneficiary should pay attention to the fact that the original letter of credit should be marked with the words “not valid at the moment”. It is recommended that the beneficiary receive the shipment of the goods after receiving the formal notice of the bank's entry into force.

17. Letter of Credit Special Terms (Special Conditions)

The letter of credit sometimes contains special clauses for the beneficiary, the advising bank, the paying bank, the accepting bank, the confirming bank or the negotiating bank. For unacceptable terms, the issuing bank or the issuing applicant should be immediately amended.