7 Errors You May Face while Creating Letter of Credit in Your Export Documentation

Once you’ve confirmed that an LC is the ideal form of payment for exporting your goods overseas, you must pay personal attention to ensure the correctness while completing not only the letter of credit but also the entire paperwork.

Below are some of the obvious errors exporters commit when creating LCs.

1. Not knowing the true meaning of an LC

This is the basic detail for evading any mistakes on the document. If you don’t know the true purpose of an LC, you probably won’t know how to meet its obligations. You may unintentionally complicate details.

Solution: Take time to know what an LC is, how it is used, and what it fulfills.

2. Choosing an LC when a different method of payment is better

At the start of this post, we asserted that you have already decided that the LC is the ideal form of payment for your export transaction. However, it’s important to make sure you take time to reconsider this step because if you’re instinctively choosing LC as your payment method, you could be committing a costly mistake.

Solution: Make sure you’ve studied all of the alternatives before you conclude on complex LCs, because there may be another option that is properly suited to your specific needs. Enroll yourself in any import export course program from a well profiled institute or banking partner can further help you with this decision.

3. Missing to barter the terms of LC during the discussion of the contract

If you don’t discuss all the terms up front, you’re putting yourself into problems that you may be lawfully bound to. This is particularly important if you’re managing a sales team who just wants to trade and may not be individually interested in the particulars of how they are going to get paid.

Solution: Explain the terms of your LC before it is even accepted. You can evade errors and ensure a smooth dealing by addressing what you want in the LC from the beginning.

4. Not ensuring the agreement between the proforma invoice and contract

If you’re ignorant of what has been accepted in the eyes of your importer, or you’re ignorant of regulations, you could accidentally create contradictory papers.

Solution: At the end of everything, if an exporter does his or her research upfront, and all queries are addressed at the beginning of the process, it will lead to zero or fewer errors. That’s why discussing the terms immediately is highly recommended. There’s no guesswork or assumptions when creating agreements, the proforma invoice, or any export document.

5. Incorrect evaluation of LC when it is accepted

A bank will look at an LC from its view, so exporters are required looking at LC from their view. The bank will warrant that everything is uniform on its end, but it is up to the exporter to ensure what they evaluate and confirm what was considered in the agreement, proforma invoice, or contract. If not, correcting a flaw or getting an alteration could take time, which holds your payment.

Solution: Evaluate your LC to make sure it agrees with what was considered in the agreement.

6. Not being able to satisfy all the terms and conditions of LC

You need to ensure that when you’re evaluating an LC, you can entirely conform to and meet the terms and conditions. How do you determine those terms and conditions?

Solution: Many banks offer informative guides that can help you evaluate it to ensure you can comply with the terms and conditions.

7. Allowing someone ignorant or unknowledgeable prepare the LC document

You wouldn’t allow just anyone to manage your finances, resolve your legal arguments, or take care of your family. So why would you hand over the charge of LC to just anyone? You shouldn’t!

Solution: Make sure the person who is making the LC documents has all of the necessary information and supplies available to do it accurately. 

Below are some questions you should answer before allowing anyone to prepare LC:

• Are they experienced with LCs?
• If not, do you have a plan in place to train?
• Are the documents proof-read for accuracy after finish?

What’s the cost of committing an error in an LC?

Finally, the most expensive error you can make is not to get paid on time for your commodities in accordance with the terms and conditions of LC. 

Every error an exporter commits in an LC could end with this outcome. 

By taking responsibility to avoid these seven basic pitfalls, you’ll pass any surprises from your LC and can enjoy smooth sailing on your way to getting paid.