What should I check in a letter of credit?

Before relying on a letter of credit, establish which bank is undertaking to pay, under what documentary conditions, by which dates and through which payment process. Then make sure the business can prepare those documents and fund the work before payment. A customer's statement that an LC exists is not the completed arrangement.

The US International Trade Administration's guide explains that a commercial letter of credit connects the bank's payment undertaking to complying documents. Banks deal with the documents specified, rather than determining the quality of the underlying goods. That is a narrower protection than an assurance that every part of the trade will go well.

Make the payment conditions readable

Consider a wholly fictional exporter considering an $18,000 order for one hundred decorative model stands. Its bank has authenticated the issued LC and identified the issuing bank. No confirmation by a second bank is included. The exporter still needs to assess the issuing-bank and country risks; authenticity alone does not establish future payment capacity.

The supplied LC requires an invoice for exactly $18,000 identifying product A, a packing list for one hundred units and the specified carrier document showing shipment by June 18, 2027. Complete presentation must reach the named bank by June 23, ahead of the June 25 expiry. Under the supplied payment term, a complying presentation accepted by that date is payable July 2. These are invented terms, not universal LC deadlines or a standard payment period.

The underlying order has the same product, quantity and shipment requirement. The exporter has confirmed the stock, paid labor, carrier and document-preparation capacity for that schedule. It has not shipped or presented documents yet.

Find discrepancies before shipping

The current draft invoice says product B. The accepted order and actual goods are product A. Correct the invoice against those underlying facts before presentation. Do not merely copy the LC wording onto a document if the goods or shipment do not match it.

If only ninety-nine units were actually available, a packing list saying one hundred would not solve the problem. The exporter would need a real remedy and, where necessary, an accepted amendment to the commercial and bank arrangements before relying on a different performance. An amendment requested is not an amendment completed.

Use a compact pre-shipment record:

• Bank undertaking: authenticated issued instrument, identified bank and the actual parties and roles.
• Required evidence: each named document, its issuer and the facts it must accurately support.
• Dates: shipment, presentation, expiry and payment, kept separate.
• Preparation owner: the paid person checking and presenting the documents, with the required time available.
• Unresolved items: discrepancy, amendment, fee or bank-risk question that remains open before commitment.

The document preparer should review the actual requirements with the relevant trade professionals. In a real transaction, the applicable instrument and rules matter. The short record here is not a replacement contract or a complete documentary checklist for every shipment.

Fund the order before the bank receipt

This order's complete supplied payments are $12,000 for production, including all worker and owner time and other assigned operating costs; $1,000 freight; $200 for the paid documentary specialist; and $300 bank fees. All $13,500 must be paid before July 2. There are no other costs, tax payments, financing or cash events in this limited order record.

The exporter has $14,000 available specifically for it, after other business and household commitments. Those payments leave $500 before any bank receipt. If the full $18,000 is then received under the supplied conditions, the assigned cash becomes $18,500: the original $14,000 plus the receipt less $13,500. The $18,500 is not profit; $14,000 was already there.

The LC has not funded production simply by being issued. If payment is delayed or conditions are not met, the $500 remains the limited cash left after this order's payments. The model supplies no funds for other commitments and no guarantee of another borrowing route.

Keep the commercial promise alive

Payment documents and customer delivery remain related but distinct work. A complying presentation does not excuse defective goods or complete every obligation under a sales arrangement. Likewise, good goods do not repair a missed documentary condition by themselves.

The existing supplier-funding guide follows a domestic order's payment stages. Here the new dependency is a bank's documentary undertaking, not simply a customer's invoice approval. The counterparty resource also keeps a promise separate from usable money.