1. Comply with the Letter of Credit Terms
You need to carefully review the letter of credit once you receive it to make sure that the terms mentioned match those stated on your quotation. Additionally, you should look for any typos and incorrect information. This review of the letter of credit is essential because if any of the terms specified on the letter of credit are not met, you risk not getting paid because the letter of credit has been deemed invalid. Should you find any information that needs to be corrected, you need to contact your buyer immediately so that an amendment can be added to the letter of credit.
2. Consider an Irrevocable Letter of Credit
You can either get an irrevocable or revocable letter of credit. With an irrevocable letter of credit both the seller and buyer must agree so that changes can be made to the letter. A revocable letter of credit will allow either the seller or buyer to make changes without the other party’s consent. By using an irrevocable letter of credit you are not at risk of being caught off guard by any surprise changes that the buyer may add to the letter.
3. Include Acceptable Practices in the Letter of Credit
A way to prevent a letter of credit from becoming invalid is to account for any unforeseen problems that may arise at the last minute which might affect not meeting the specified terms. Therefore, you should specify any acceptable practices such as allowing for partial shipments or transshipment in the letter of credit. This way you do not run the risk of not getting paid should something happen.
4. Banks Only Pay the Amount in Letter of Credit
The amounts listed on a customer’s quotation should match the amount specified on the letter of credit. This is because banks will only pay the amount that is listed on the letter of credit even if there is a documented higher amount. Therefore, you should pay close attention to all of the costs associated with the transaction such as insurance, shipping and bank charges along with other costs that may be incurred. Accounting for these costs and including them in the specified amount on the letter of credit is essential so that you do not find yourself paying for fees out of your own pocket.
5. Have the Letter of Credit Confirmed
As the U.S. exporter you can have a U.S. bank confirm the letter of credit if you have any concerns about or are not familiar with the foreign bank issuing the letter. This confirmation will bring peace of mind because by confirming the letter of credit both the U.S. bank and the foreign bank promise to pay the exporter.
6. Provide Evidentiary Documentation
It is extremely important that you provide all of the necessary documentation showing that you shipped the goods by the specified date in the letter of credit. Therefore, it is essential that you communicate with your freight forwarder to confirm that the shipment will arrive on time and that there are not any circumstances that may create a delay. If you are unable to meet the specified date in the letter of credit, there is a chance that you may not get paid.
7. Provide Bank with All Required Documentation
In order to ensure that you will be paid, you need to provide all required documentation to the bank by the specified time period stated in the letter of credit. You should confirm with the bank that there will be enough time for you to provide all of the documents that are required for payment.