"An L/C is not a guarantee of money. It is a conditional promise."
As we enter the high season, you will deal with new buyers and banks from unfamiliar regions.
Simply asking for an "L/C" is dangerous. An L/C from a top-tier bank in Germany is safer than cash. An L/C from a small bank in a volatile developing nation might be worthless.
Today, we dissect the 3 types of L/C under UCP 600 rules to protect your shipment.
1. The Standard: Irrevocable L/C
This is the baseline for international trade. Never accept a "Revocable" L/C.
- Definition: "Irrevocable" means the Buyer cannot cancel or change the L/C without your (the Seller's) explicit agreement.
- The Risk: While the Buyer cannot cancel it, the Issuing Bank can still fail to pay if:
- The bank goes bankrupt.
- The country imposes Foreign Exchange Controls (banning dollar outflow).
- There is a "Discrepancy" in your documents.
- Strategy: Always check the credit rating of the Issuing Bank (Moody's, S&P). If it's below "BBB," ask for Confirmation.
2. The Shield: Confirmed L/C
If you are selling to a high-risk country (e.g., Africa, South America, parts of South Asia), you need a "Confirmed L/C."
🛡️ Double Protection Mechanism
- How it works: A second bank (usually a global bank like Citibank, HSBC, or Standard Chartered in your country) adds its "Confirmation" to the L/C.
- The Guarantee: Even if the Buyer's Bank fails or the Buyer's country goes to war, the Confirming Bank MUST pay you.
- The Cost: It costs extra (Confirmation Fee), usually 0.5% ~ 2.0% per annum.
Negotiation Tip: Who pays this? Usually, the Buyer pays opening charges, and Seller pays confirmation charges. But you can negotiate "All banking charges outside Buyer's country are for Buyer's account."
3. The Win-Win: UPAS L/C (Usance Payable At Sight)
What if the Buyer wants 90 days credit (Usance), but you need cash now (At Sight)?
The answer is UPAS L/C.
| Role | Benefit |
| For the Seller | You get paid immediately (At Sight) by the Reimbursement Bank. No waiting. |
| For the Buyer | The Buyer pays the bank 90 days later. They get the credit they need to sell the goods. |
| The Cost | The Buyer usually pays the interest (LIBOR/SOFR + Spread). This is often cheaper than a local bank loan. |
Expert Verdict: Field 41A & Discrepancies
Finally, remember that 70% of first L/C presentations are rejected due to Discrepancies (Typos, late shipment, wrong port).
- Field 41A: Check if the L/C is "Available with Any Bank by Negotiation." If it is restricted to the Issuing Bank, you have no leverage.
- The 5-Day Rule: Under UCP 600, banks have 5 banking days to check documents. If they don't reject it by then, they MUST pay.
Trust the Code (UCP 600), not the Handshake.
Next: Start of March
👉 [March #1] [Mindset] The Trader's Psychology: FOMO & Discipline⚖️ Disclaimer & Privacy Notice:
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