Six-step process for machinery and equipment Letters of Credit (L/C): ① Issuance (Buyer’s bank issues an irrevocable documentary L/C subject to UCP600 rules); ② Notification (Advising bank relays the L/C); ③ Review & Amendment (Seller checks terms; amend early if discrepancies exist); ④ Shipment & Document Presentation (Submit full set of documents per L/C requirements after shipping); ⑤ Bank Document Review (Ensuring documents match L/C terms); ⑥ Negotiation & Payment (Issuing bank makes payment)—“Strict compliance” (documents matching terms) is the golden rule for getting paid (discrepancies = risk of non-payment).
I.
Issuance and Notification
Buyer Issuance: Apply to the issuing bank for an irrevocable documentary L/C (L/C amount = contract amount; validity period + shipment period); Advising Bank: Seller’s bank receives and relays the L/C to the seller; Review: Seller checks terms (product name/quantity/amount/document requirements/delivery date)—mismatch between terms and actual capability = risk of non-payment (issuing bank has the right to refuse payment if documents are non-compliant).
II.
Amendment
Identifying Issues: Delivery deadline too tight / document requirements unachievable (e.g., specific inspection agency or Certificate of Origin type); Amendment: Seller requests buyer to apply for an amendment (costs borne by buyer or negotiated); Principle: Amend L/C before shipping (amending after shipment = passive position)—better to decline the order if terms cannot be met (if discrepancies are hard to fix, negotiate to waive the right to refuse payment).
III. Shipment and Document Submission
Production and shipment per L/C (product name, model, and quantity must match the L/C); Document preparation (invoice, packing list, bill of lading, insurance policy, certificate of origin, and inspection certificate must meet L/C requirements); Submission deadline (within 21 days after the shipment date, per UCP600); Consistency of documents (information across documents must align)—documents are effectively “checks,” and even a single-word discrepancy can constitute a “discrepancy” (non-compliance).
IV.
Document Review and Payment
Bank review (issuing bank/negotiating bank checks for facial conformity of documents); Conformity: Issuing bank makes payment (at maturity or at sight); Discrepancies: Bank refuses payment or releases funds after the buyer accepts the discrepancies; Recourse: Negotiated resolution if discrepancies cannot be rectified (buyer accepts → payment; buyer rejects → document return)—document review focuses on documents, not the goods (document quality determines payment receipt).
V.
Notes for Overseas Buyers/Sellers
First, simplify L/C terms (fewer document requirements mean a lower risk of discrepancies); second, allow a margin for delivery times (build in buffers for both the shipment period and the document submission period); third, self-check documents (verify item-by-item against the L/C before shipment); fourth, use L/Cs only for large orders (>$50,000–$100,000; costs are high); fifth, usance L/Cs (acceptance against documents = granting the buyer a credit period)—the six steps of an L/C (issuance, advising, L/C review, shipment/submission, document review, payment);
document conformity is the golden rule for getting paid, and simpler terms mean greater safety.
