Issues that importers should pay attention to when applying for issuance of a letter of credit and detailed explanation of letter of credit forms

In international trade, letters of credit, as a common settlement tool, play an important role in ensuring transaction security. When importers apply for issuance of a certificate, they need to follow a series of regulations to ensure that the transaction proceeds smoothly.

Notes on issuing a certificate

• Before applying for the issuance of a certificate, the importer needs to ensure that the necessary import approval procedures have been completed and the source of foreign exchange has been confirmed.
• The time for issuing the L/C should be chosen based on the principle of ensuring that the seller can ship within the shipment period specified in the contract after receiving the L/C.
• The content of the letter of credit must be consistent with the terms of the contract, especially those involving payment terms.
• If the contract stipulates long-term payment, the term of the bill of exchange needs to be specified.
• In order to avoid disputes arising from cargo quality issues, it is recommended that the seller be required in the letter of credit to provide a pre-shipment inspection certificate issued by an independent third-party inspection agency.
• Ensure that the document information in the letter of credit is clear and accurate, including but not limited to commercial invoices, insurance policies, shipping documents, etc.
• According to the Uniform Customs and Practice for Documentary Credits (UCP600) formulated by the International Chamber of Commerce, all documentary letters of credit should be irrevocable.
• Normally, the importer should not agree to the exporter’s request for L/C confirmation.
• For contracts with larger amounts, if you really need supplies from multiple exporters, you can consider negotiating with the bank to issue a transferable letter of credit.
• Avoid using letters of credit with telegraphic claim clauses.

Form of letter of credit

Letter of credit can be divided into letter of credit, electronic letter of credit and simple telecom letter of credit according to its issuance method.

• Letter of credit: This form of letter of credit is sent to the advising bank in paper form by mail or express, and is mainly used for early international trade settlement.
• Electronically issued letters of credit: With the advancement of technology, electronic means are now increasingly used to transmit letter of credit information through channels such as the SWIFT system.
• Simple Telephone Certificate: First notify the beneficiary in the form of a brief telegram, and then issue a formal copy.

L/C issuance date and bill of exchange terms

• The letter of credit issuance date refers to the specific time when the bank officially opens the letter of credit, which is of great significance for subsequent operations.
• Bill of exchange terms refer to the specific provisions in the letter of credit regarding the issuance of the draft, including information such as which letter of credit the draft should be issued on.

Certificate application process

• The importer needs to submit a detailed application for issuance of the certificate and other documents that may be required to the bank.
• The application for issuance of a certificate usually includes two parts: the first is the specific instructions from the importer to the bank; the second is the agreement between the importer and the bank on issues such as cost responsibilities.

The above content summarizes the key steps and related precautions in the letter of credit application process, aiming to help importers better understand and implement relevant procedures.