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Hi friends, I have no question but I just wanted to share my thoughts about L/C transactions.

I have been working in the L/C dept for many years. I am in the opinion that L/C wording must be simple, easily understandable. Ambiguous, repeating and meaningless terms must be avoided. The shorter the L/C, the better it is for everybody. Hereby, I wrote down some of the terms, phrases, items which I consider unnecessary but commonly added in L/C texts.
+ “Commercial invoice made out to the name of applicant, stating value of the goods…” (commercial invoice must be issued to the name of applicant and must state value of goods of course, no need to mention this)
+ “Insurance will be covered by applicant” (This item not needed while incoterms is EXW, FOB, FCA etc, as it is obvious )
+ “Plus or minus X percent tolerence acceptable in both quantity and amount” (While field 39C and field 45A also states this tolerence ans extra item in field 47a no needed)
+ “This L/C is discountable” (A defferred payment or acceptance L/C available with a nominated bank and as per UCP 600, 12b, this authorisation is already given)
+ “The negotiating bank must endorse each drawing amount on the original L/C” (Todays LCs advised mostly via e-mail to beneficiary, generally no original LC document exists)
+ “Field 48: Within 21 days after shipment date but within L/C validity.” (Leaving this field blank also means that but nearly 90 pct of the LCs write this item)
+ “Third party documents acceptable except commercial invoice” (no effect to L/C)
+ “Payment to beneficiary under reserve and any kind of guarantee not acceptable“(Which bank pays for non complying presentation? If pays, it is that bank’s risk and responsibility)
+ “This is an operative instrument and no mail confirmation follow” (isn’t it better to mention this only when the L/C is not operative)
+”House B/L not acceptable/Freight forwarder B/L not acceptable. ( ISBP also recommends not to use this clause)
+ “ IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 16 C III B OF UCP 600, IF WE GIVE NOTICE OF REFUSAL OF DOCUMENTS PRESENTED UNDER THIS CREDIT WE SHALL HOWEVER RETAIN THE RIGHT TO ACCEPT A WAIVER OF DISCREPANCIES FROM THE APPLICANT…” The item is much longer but shortly bank explains that They may act as per article 16C, iii, b. İs it necessary?
+ “T/T reimbursement not allowed (or allowed)” (While the L/C states how the payment wil be effected in field 78, this item not needed)
+ "42C : DRAFTS AT SIGHT"... As an issuing bank we do not need sight drafts but we are often urged to add this item.

These are the ones I just remember now and probably there are more.

What dou you think?

Hi Pal,

we may classify these sentences as "cosmetic clauses" as many applicants insisting to be inserted in a l/c
wording, I will add:
-FULL SET CLEAN ON BOARD BILL OF LADING.....
but i think that this one helps junior documents examiner.
Other comments appreciated-ciao

Dear Navi,

To say the truth, no issuing bank is ready to move from the their traditional method(structured format) of issuing an LC.

Some of the issuing bank still insist to use these terms in a view to protect themselves from the risk prospective.

Export LC- Never seen nominated bank seeking clarity over this.
Import LC- client behest.

“Commercial invoice made out to the name of applicant, stating value of the goods -- it should not be looked at discrepancy prospective rather risk perspective. we may not be able to claim from the customs if there is a deficiency in complying with this.

“Insurance will be covered by applicant” - Issuing bank should expect the insurance document drawn on them only when they are being nominated themselves as the consignee and the LC is not being issued under collateral basis.

+ “Plus or minus X percent tolerence acceptable in both quantity and amount” (While field 39C and field 45A also states this tolerence ans extra item in field 47a no needed)- not sure whether we still have this. because i remember there were issue with regard to the symbel - /+ which made to assume things diffferently.

The negotiating bank must endorse each drawing amount on the original L/C” (Todays LCs advised mostly via e-mail to beneficiary, generally no original LC document exists) - This is general expectation of the IB to protect themselves from being caught between presentation at nominated bank and presentation directly from the beneficiary particularly for LCs with terms'' any bank by negotiation''

in similar way there is a reason for the below points being available in the LC structure....

Thanks &Regards
Dinesh Kumar

Hi Dear Dinesh,

If we consider all the alternatives and try to add terms in the L/C to ensure them, LC texts will be unworkable. Every party in the LC transaction want to feel themselves secured of course but those items do not secure them. Most of them just repeating or stating the obvious.
+ I cannot consider any beneficiary issuing a commercial invoice to the name of a party other than the applicant unless there is a term in the LC. And commercial invoice, by its nature must state the value of goods, otherwise it won't be invoice.
+ If insurance is not responsibility of the beneficiary, issuing bank may seek this document from applicant, drawn on themselves. But it is not necessary to add an item in the L/c as it does not concern beneficiary.
+ In the tolerance issue, when amount tolerence stated field 39c , and quantity tolerence in field 45A, is there a need of an item in field 47A, just repeating this? I don't think so.
.
L/C text structure is also important. For example, if we want to add a term regarding the packing list, I think it is better to add it in field 46A, under packing list item i/o field 47A. This will help both document presenter and checker. Some L/C wording seem to be designed to trap beneficiary to make mistakes while preparing documents and his bank to overlook the discrepancies so that issuing bank can refuse documents and stop payment for a while at least. This makes LC method of non payment i/o payment.

Best regards

Dear Navi,

Completely agree with your view. but we need to admit that banks are reluctant to move away from the usual LC structures.

Thanks & Regards
Dinesh Kumar