A Letter of Credit (L/C) is one of the most secure and widely used payment methods in international trade. It provides assurance to both the buyer (importer) and seller (exporter) that payment and delivery obligations will be fulfilled. However, for an exporter to receive payment under a Letter of Credit, they must present specific supporting documents that comply strictly with the terms of the L/C.
Below is an overview of the typical documents required, their purpose, and key considerations for ensuring compliance.
1. Financial Documents
These documents represent the financial claim of the exporter against the buyer.
- Bill of Exchange (Draft):
This is a written order from the seller (drawer) to the buyer (drawee) or the buyer’s bank, demanding payment of a specified amount at sight or on a future date.
It serves as the financial instrument that triggers payment once the conditions of the L/C are met.
2. Commercial Documents
These documents provide details of the goods shipped and the transaction itself.
- Commercial Invoice:
Issued by the exporter, it lists details such as the description, quantity, unit price, and total value of the goods. The invoice must exactly match the terms stated in the L/C.
- Packing List:
Details the contents, packaging type, dimensions, and weight of the shipment. It helps customs and the buyer verify that the correct goods were shipped.
3. Shipping Documents
These are essential for proving shipment and ownership of goods. They are often the most critical documents under a Letter of Credit.
- Bill of Lading (B/L):
This document serves as proof of shipment, title of goods, and contract of carriage between the exporter and the carrier. It must be the original document unless otherwise specified.
Variants include Ocean B/L, Air Waybill, Truck Receipt, or Railway Receipt, depending on the mode of transport.
- Forwarder’s Cargo Receipt or Combined Transport Document:
Used when the shipment involves multiple modes of transportation (multi-modal transport).
4. Official Documents
Certain shipments may require official government or third-party certifications depending on the goods’ nature and destination.
Common examples include:
- Import/Export License
- Certificate of Origin (CO) – proving the country where goods were made or processed.
- Inspection Certificate – issued by a neutral body confirming the quality or quantity of goods.
- Phytosanitary Certificate – required for agricultural or plant-based products to confirm they meet health and safety standards.
- Embassy Legalization – required by some countries for trade documents to be recognized.
5. Insurance Documents
If the shipment is covered under CIF (Cost, Insurance, and Freight) terms, the exporter must provide:
- Insurance Policy or Certificate:
This confirms that the goods are insured for the required value during transport.
Note that an insurance cover note is not acceptable under an L/C; a formal policy or certificate is mandatory.
Importance of Compliance
Exporters must ensure that every document:
- Matches exactly with the details specified in the Letter of Credit.
- Complies with UCP 600 (Uniform Customs and Practice for Documentary Credits) — the international standard governing Letters of Credit.
Even minor discrepancies, such as misspellings, incorrect dates, or mismatched quantities, can result in payment delays or rejection by the negotiating bank.
The successful execution of a Letter of Credit transaction depends on the accuracy and completeness of the submitted documents. Exporters should carefully review the L/C terms, prepare all required documents, and ensure strict compliance with UCP 600 rules before submission.
At Premia TNC, our trade experts can assist businesses with Letter of Credit documentation, bank negotiations, and export compliance to ensure seamless international transactions and timely payments. Contact us today to streamline your L/C processes with confidence.