The validity period of a letter of credit refers to the time when a foreign trade enterprise presents documents to a bank for negotiation, rather than the time when the issuing bank receives the documents. In foreign trade business, letters of credit are a relatively new settlement method, and the validity period of a letter of credit is used as a time for negotiation, so foreign trade enterprises need to understand it in order to smoothly carry out foreign trade business.
Usually, the validity period of a letter of credit is 21 days after the ship is sailed. Before a letter of credit is issued, its validity period needs to be calculated, which generally depends on two factors: one is the latest shipment date, and the other is the presentation period. The validity period of a letter of credit is not calculated, but is stipulated in the letter of credit.
The presentation period sometimes needs to be calculated, which generally includes three clauses: letter of credit 31D-date and place of expiry (time and place of expiry of the letter of credit), letter of credit 44c-latest date of shipment (latest shipment period stipulated in the letter of credit), letter of credit 48-period for presentation (presentation period).
The relationship between the validity period of a letter of credit and the latest shipment period is mainly reflected in the following aspects.
(1) Shipment period or latest shipment period refers to the period or latest date when the seller loads all the goods onto the means of transport or delivers them to the carrier (the bill of lading issuance date, i.e. the sailing date, shall not be later than the validity period specified in the letter of credit. If no validity period is specified, the shipment date shall not be later than the expiration date of the letter of credit).
(2) Expiration date refers to the validity period of the letter of credit (the carrier, i.e. the seller, shall not return the documents to the bank before this date, so the carrier shall deliver the bill of lading to the seller before this date so that the seller can submit the documents to the bank for negotiation in time).
(3) Presentation period refers to the specific period after the transport document is issued, when the document must be submitted to the bank specified in the letter of credit for payment, acceptance or negotiation (if the letter of credit stipulates that the documents must be submitted within the specified validity period; if not stipulated, the documents must be submitted no later than 21 days from the date of the transport document; but in both cases, the documents must be submitted no later than the expiration date of the letter of credit).
(4) Double expiration. The latest shipment date and negotiation due date stipulated in the letter of credit are on the same day, or no shipment date is stipulated. This is called double expiration in practice (in principle, there should be a certain interval between the expiration date and the latest shipment date of the letter of credit, so that the carrier has time to handle the preparation, submission and negotiation of documents. However, if double expiration occurs, the carrier should pay attention to loading the goods on the means of transport or handing them over to the carrier a few days before the expiration date of the letter of credit, so that there is enough time to prepare various documents, submit documents and handle negotiation procedures).
To sum up, the relationship between the validity period of the letter of credit can be expressed as follows:
Expiration date (validity period) ≥ Document submission period > Latest shipment date; Ideal expiration date (validity period) = Latest shipment date + Document submission period