The sole standard for payment under a letter of credit is "documentary compliance." Meet it and the bank pays; fail it and the bank has the right to refuse payment — and refuse with full justification.
The Complete L/C Workflow
Step 1: Buyer and seller agree in the contract to settle by L/C.
Step 2: The buyer applies to the issuing bank to open a letter of credit.
Step 3: The issuing bank opens the L/C and notifies the seller through the advising bank.
Step 4: The seller reviews the L/C, checking clause by clause whether they can comply.
Step 5: The seller ships according to the L/C requirements and prepares all documents.
Step 6: The seller presents documents to the nominated bank within the validity period.
Step 7: The bank examines the documents; if compliant, it pays or accepts.
Step 8: After the issuing bank pays, the buyer pays and collects the documents, then takes delivery against them.
What to Check When Reviewing the L/C
The creditworthiness and strength of the issuing bank.
Whether the L/C is irrevocable — a revocable one offers no protection.
Whether the amount, currency, validity period, and presentation period allow enough time to operate.
Whether you can fulfill all document requirements — if not, request an amendment immediately.
Whether there are soft clauses — terms that hand payment control back to the buyer.
The 5 Most Common Discrepancies
| No. | Discrepancy | Common Cause |
|---|---|---|
| 1 | Late presentation | Documents not presented within the presentation period after shipment |
| 2 | Document inconsistency | Description or quantity on invoice, B/L, packing list don't match |
| 3 | Late shipment | Shipped after the latest shipment date specified in the L/C |
| 4 | Amount exceeds L/C | Invoice amount exceeds the L/C amount |
| 5 | Missing document type or copies | One document short, or a copy submitted where an original was required |
What to Do When Discrepancies Arise
Contact the buyer immediately and ask them to accept the discrepancies and confirm payment.
Or ask the buyer to amend the L/C, changing the clauses you cannot meet.
If negotiation fails, you can switch to documentary collection.
Whichever route you take, extra costs and time losses may arise — fees are subject to the bank's actual quotation.
Don't Confuse Presentation Period with Shipment Period
The shipment period governs "the latest date for loading on board."
The presentation period governs "how many days after shipment documents must be presented."
These are two separate deadlines — exceeding either one counts as a discrepancy.
Four Common Pitfalls
Receiving the L/C and arranging production without reviewing it first.
Confusing the shipment date with the presentation date, leading to late presentation.
Including information on documents that the L/C didn't require, which is deemed inconsistent.
Failing to spot soft clauses in time, handing payment control back to the buyer.
