Very important bfm case study point of view

Summary of Major Issues in LC Transactions



Check List for Issuing/Accepting L/C

• Quality of Issuing Bank

• Method of Payment: Sight or Deferred Basis

• Transport Documents

• Other Documents

• Documents: Banks deal in documents not in goods, services or performance

• Should not refer to underlying contract

• Timing: UCP norm is max. 21 days after shipment date for presentation of

documents

Responsibilities and Obligations of Banks

• Irrevocable unless otherwise mentioned

• Issuing Bank: Prime obligation

• Advising Bank: Only obligation to authenticate the credit and passing it on promptly

to beneficiary



• Confirming Bank: takes over payment responsibilities of the issuing bank as far as the

beneficiary is concerned

• Reimbursing Bank: Responsibility of Issuing Bank to provide proper reimbursement

instructions

• Applicability of Force Majeure clause limiting banks’ liability on account of Acts of

God, riots, etc.

• Banks have five banking days to examine documents after receipt of documents

• Banks will examine documents with reasonable care

• Documents should be consistent with each other and complete

• Documents should conform with the terms of the credit

• Documents should comply with the provisions of UCP

Common Defects in Documentation

Commonly found discrepancies between the letter of credit and supporting documents

include:

• Letter of Credit has expired prior to presentation of draft.

• Bill of Lading evidences delivery prior to or after the date range stated in the credit.

• Stale dated documents.

• Changes included in the invoice not authorized in the credit.

• Inconsistent description of goods.

• Insurance document errors.