In short
- Under a documentary credit the issuing bank pays against documents, not goods. Banks check the documents, not whether the shipment was right.
- Under UCP 600 you must normally present within 21 calendar days after shipment, and never after the LC expires. Banks have up to 5 banking days to examine the documents.
- Documents need not be identical, but they must not conflict. A discrepancy lets the bank refuse to pay, which puts you back to relying on the buyer.
Who is involved
| Party | Role |
|---|---|
| Applicant | The overseas buyer, who asks their bank to issue the credit |
| Issuing bank | The buyer's bank, which gives the irrevocable undertaking to pay against a complying presentation |
| Advising bank | A bank in India that authenticates the LC and passes it to you, without any obligation to pay |
| Confirming bank | A bank that adds its own undertaking to pay, on top of the issuing bank's |
| Beneficiary | You, the exporter |
| Nominated / negotiating bank | The bank where the credit is available, usually your own AD bank, which examines and forwards the documents and may pay or negotiate |
How an LC transaction flows
Sight, usance and confirmed LCs
SightPaid once a complying presentation is made and examined
UsanceDeferred payment, for example 90 days after the bill of lading date; can often be discounted early
ConfirmedA second bank, often in India, also undertakes to pay, covering issuing-bank and country risk
Ask for confirmation when you are unsure of the issuing bank or the buyer's country. Confirmation has a cost, so agree in the sales contract who pays for it.
The UCP 600 deadlines
21 daysLatest presentation after shipment, unless the LC states otherwise (UCP 600 art. 14(c))
ExpiryNo presentation is possible after the credit's expiry date, whatever the shipment date
5 banking daysMaximum time each bank has to examine a presentation (art. 14(b))
Check the latest shipment date too. A bill of lading dated after the latest shipment date in the LC is a discrepancy, even if you present on time.
The document rules that matter most
- Documents, not goods. Banks examine documents on their face. They do not inspect the cargo.
- No conflict, not identical. Data in a document, read in context with the credit and the other documents, need not be identical to them but must not conflict (art. 14(d)).
- The invoice description must correspond to the credit (art. 18(c)). Other documents may describe the goods in general terms that do not conflict with the credit.
- ISBP 821 (International Standard Banking Practice) sets out how banks apply UCP 600 when checking documents. Your bank's document checkers use it, so you should too.
Common discrepancies and how to avoid them
| Discrepancy | Typical cause | Prevention |
|---|---|---|
| Late shipment | Bill of lading dated after the LC's latest shipment date | Ask the buyer to amend the LC before the date passes, not after |
| Late presentation | Documents reach the bank after 21 days or after expiry | Track the deadline from the BL date; courier originals early |
| Description mismatch | Invoice wording differs from the LC's goods description | Copy the LC description into the invoice exactly |
| Amount or quantity issues | Invoice exceeds the credit amount, or quantities differ between documents | Generate all documents from one invoice record |
| Missing endorsement | Bill of lading or insurance document not endorsed as the LC requires | Check the "to order" and endorsement instructions line by line |
| Wrong consignee or notify party | BL shows the buyer as consignee when the LC asks for "to order of the issuing bank" | Give the carrier the LC's exact consignee and notify wording |
| Insurance too low | Cover below the percentage the LC asks for, often 110% of CIF or CIP value | Calculate cover from the invoice value and the LC clause |
| Unacceptable BL clauses | "Claused" BL noting damaged goods or packaging, or on-board notation missing | Resolve packaging issues before loading; check the on-board notation |
If the bank finds a discrepancy it can refuse the presentation. You may be able to correct and re-present within the time allowed, or the buyer may waive it, but you have lost the bank's guarantee and are again relying on the buyer.
Pre-presentation checklist
- Read the LC as soon as it is advised and request amendments immediately for anything you cannot meet.
- Diary the latest shipment date, the presentation deadline (BL date + 21 days or as stated) and the expiry date.
- Copy the goods description, Incoterm, consignee and notify wording from the LC into your documents exactly.
- Check every document against the LC's list of required documents, including number of originals and copies.
- Check signatures, endorsements, dates and on-board notations.
- Check amounts and quantities across invoice, packing list, BL and insurance for conflicts.
- Have your bank's trade desk pre-check the set if the LC is large or unusual.
How EXIMnx helps: sales orders are gated by payment mode, including LC, so production does not start until the credit is in place. On the import side, letters of credit are opened against the purchase order with their documents and expiry tracked. All export documents are generated from one invoice record, so descriptions and amounts match. See the Export module.
Sources and further reading
- ICC Uniform Customs and Practice for Documentary Credits (UCP 600) and International Standard Banking Practice (ISBP 821): iccwbo.org
- RBI Master Direction on Export of Goods and Services: rbi.org.in
This guide is a practical overview, not legal or banking advice. The terms of each credit override the general rules; check them with your bank.