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Letter of credit - The Letter of Credit Application
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The Letter of Credit Application
The following information should be addressed when establishing a letter of credit.
1. Beneficiary
The seller should provide to the buyer its full corporate name and correct address. A simple mistake here may translate to inconsistent or improper documentation at the other end.
2. Amount
The seller should state the actual amount of the letter of credit. One can request a maximum amount when there is doubt as to the actual count or quantity of the goods. Another option is to use words like "approximate", "circa", or "about" to indicate an acceptable 10 % plus or minus from the stated amount. For consistency, if you use this wording you will need to use it also in connection with the quantity.
3. Validity
The seller will need time to ship and to prepare all the necessary documents. Therefore, the seller should ensure that the validity and period for document presentation after the shipment of the goods is long enough.
4. Seller's Bank
The seller should list its advising bank as well as a reimbursing bank if applicable. The reimbursing bank is the local bank appointed by the issuing bank as the disbursing bank.
5. Type of Payment Availability
The buyer and seller may agree to use sight drafts, time drafts, or some sort of deferred payment mechanism.
6. Desired Documents
The buyer specifies the necessary documents. Buyers can list, for example, a bill of lading, a commercial invoice, a certificate of origin, certificates of analysis, etc. The seller must agree to all documentary requirements or suggest an amendment to the letter of credit.
7. Notify Address
This is the address to notify upon the imminent arrival of goods at the port or airport of destination. A notification listing damaged goods is also sent to this address, if applicable.
8. Description of Goods
The seller should provide a short and precise description of the goods as well as the quantity involved. Note the comments in step #2 above concerning approximate amounts.
9. Confirmation Order
With international arrangements, the seller may wish to confirm the letter of credit with a bank in its country.
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