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Questions ⇔ Answers




L/C 3: What effort and cost is connected with L/C payment conditions?




There is some effort and cost connected with it, however this should be seen on the background of a secured and timely payment.


  • Effort:
    • The detailed payment conditions for L/C payments must already be part of the contract.
    • Thorough check of the advised L/C's, of the conditions stated; request necessary corrections or changes
    • Establish shipping documents in accordance with the conditions of the L/C
    • Present documents to the advising/confirming bank


  • Costs – they depend largely on the conditions of the L/C:
    • Advising, checking of documents and dispatch – usually they are based on the amount of the L/C, for ex. 10 to 15 bp of the amount, including a minimum and maximum limit. The cost levels are set by the individual bank.
    • Confirmation cost – if the L/C confirmation is part of the instructions of the L/C, the cost is for the account of the client. A „silent confirmation“, requested by yourselves from the advising bank, it will calculate the cost in accordance with their risk evaluation.
    • Presentation of the documents (you send the documents to the advising/confirming bank, it checks them and if o.k. dispatches them to the L/C-opening bank) – charges are also based on the L/C amount, for ex. 20 bp, a lower limit is applicable, however no maximum limit applies!
    • Additional charges may be raised, for ex. for pre-advice, presenting incorrect documents, changes, deferred payment conditions, etc.

Are your standard payment conditions based on L/C securities, effort and cost connected should be reflected in the pricing of the goods.



- Link Payment securities








L/C 2: What are the catches that come with a Letter of Credit?




There are catches, however this is no reason to waive Letter of Credit payment conditions. You need to take care of some particularities.


When to be opened/advised:

  • Without down payment:
    • Agree on the contract entering into force with the checked and correct L/C opening resp. advice.
    • Later opening (x months prior shipment): Fix a point in time at which the risk of contract failure resp. damages from a failure is of little or no consequence.
  • With down payment: Depending on the size of the down payment, possible securities (down payment guarantee) a delayed opening of the L/C may be agreed (small down payment → short delay; substantial down payment → later opening of the L/C).


You receive L/C opening advice – check thoroughly:

  • The contents like amounts, latest shipping or due dates, shipping conditions etc. must be in accordance with the contract conditions.
  • You must be in a position to obtain/generate the required export documents such as packing list, phytosanitary certificates, others.
  • With minor deviations in the advised L/C (misspelling of an address, incomplete description of the goods, others) ask for corrections – usually this is done free of charge for the client. If you forego corrections, make sure these misspellings, etc. are transferred to the shipping documents where required.
  • With major differences between the contract and the opened L/C, such an impossible expiry date, differences in the shipping schedule, the use of other Incoterms, incorrect goods descriptions, request changes of the L/C.
  • The L/C is in force only when requested changes and/or corrections have been advised and you accept them.


- Checklist Letter of Credit


- Checklist presentation of documents under Letter of Credit








L/C 1: How do Letters of Credit secure your export business?




A Letter of Credit (short L/C) is one of the safest payment condition when operating internationally, the only exception being the full pre-payment.


How it works:

  • In the contract with your client you agree on L/C payment conditions.
  • The client (as the principal) instructs his bank (the L/C opening bank in the foreign country) to open a L/C in accordance with the agreed payment condtions.
    This constitutes a contract by which a bank, in accordance with its client's instructions (the importer), engages itself to pay against the fulfilment of certain conditions (for ex. the presentation of specific documents) resp. authorises an other bank (usually in the country of the exporter) to do so.
  • The client's bank (according his instructions) establishes the L/C and sends it to the exporter's bank.
    The exporter now has the security to be paid by the L/C opening bank and the importer has the security that the payment for the goods or services is effected only based on the documentation as stipulated in the L/C, representing the goods or services.
  • To further increase the payment security for the exporter his bank can confirm the L/C based on instructions by the L/C opening bank, it can engage itself with an abstract payment confirmation. If no such instructions or authorisations are given, the bank of the exporter may engage itself for an irrevocable payment by issuing a “silent confirmation”.


Link Export risks








What's the difference between commercial and legal risks?




Commercial risks mainly refer to risks involving payment and responsibility conditions within a contract.

  • Limiting payment risks: Request a down payment, payment securities (Letter of Credit, bank guarantee, insurance cover) resp. step-by-step payment against achieved performances.
    Important: An agreement on a payment schedule that does not depend on performances of the buyer should have first priority!

    Depending on buyer's country it may be advisable to insure the country risk with for ex. SERV. If financing is involved an insurance cover may be a condition.
  • Responsibility risk: Full definition of the performances of both parties, clearly defined preconditions for liability claims towards the one or the other party, comprehensive schedule of both performances.


Legal risks of international contracts stem mainly from the choice of the law and place of jurisdiction on which the contract is based. In general:

  • Should Swiss law and place of jurisdiction apply, for ex. based on your order confirmation, make sure that the “Vienna convention” (CISG) is excluded.
  • Individual agreement: Choose a neutral law; instead of a court of law an arbitration venue.

    In international contracts English law is often chosen, for Eastern Europe and Russia Austrian or German law may be acceptable; chosen places for an arbitrage may be for ex. Singapore, London, Stockholm, Vienna, etc.
  • Where the law and place of jurisdiction of the buyer's country is an unavoidable condition a detailed contract definition is required in order to neutralise as much as possible any “points of attack” on the payment conditions, the responsibility, the contract schedule, etc. A meticulous contract execution is a must.







What is the difference between „Certification“ and „Legalisation“, what is their purpose?




The certification confirms certain properties or particularities of a product or a service. Within the conditions of a Letter of Credit for example „document/certificate, certified by…“ or „certified copy…“ usually means that the signature on a document or the conformity of a copy with the original is certified.

The legalisation by a consular official of a country for which the document is destined confirms the authenticity of a document. The document, established in a specific country, is to be declared valid and acceptable by the authorities or courts of law of the importer's country. For ex. a legalisation of the Certificate of Origin confirms the verification of the signature of the Chamber of Commerce, thus confirming the authenticity of the document.

Legalisation is not always required in the language or the script of the Letter of Credit, but may be executed in the language and script of the importing country (for ex in Arabic or Cyrillic). Without instructions to the contrary the words „certified“ or „legalized“ need not be shown on the document.








In what language must shipping documents be established?



The language of the shipping documents is usually fixed in the contract or the order confirmation. Should this not be the case it is safe to assume that they are to be established in the language of the contract or the confirmation.

Is the payment secured by a Letter of Credit its conditions normally will indicate the language of the documents for presentation, for ex. „documents must be issued in xx language“. However, the Letter of Credit can also stipulate different languages for different documents.

Without a specific condition regarding the language of the shipping documents the language of the Letter of Credit is to be applied, as according the ISPB 681 the language must not hinder the issuing bank nor the named bank to meticulously check the documents submitted.


Checklist Letter of Credit








Which Incoterms® rules should we apply when shipping to PR China or India, in what cases would you suggest „Delivered Duty Paid“ (DDP) and where „Delivered Duty Unpaid“ (DDU)?





Incoterms® rules are there for two main reasons:

  1. Make the buyer or seller responsible for the transport and related costs and obligations.
  2. Determine a legal delivery point where the buyer becomes responsible for the loss/damage of the goods.

Incoterms® have no bearing whatsoever on whether goods attract customs duty, are in free circulation or not – this is the reason why the term “Delivered Duty Unpaid” (DDU) has been replaced with “Delivered At Place” (DAP) with one of the last revisions of the Incoterms® by the International Chamber of Commerce (ICC).

The questions you should address are:

  1. Do you want to arrange and pay the freight from your premises to your customer's premises, or do you want your customer to arrange and pay the freight directly with the transport company?
  2. Where do you, as the supplier, want to transfer the risk of loss or damage to the buyer?

By using the Incoterm® starting with “D” you are accepting the maximum risk, that you will arrange freight and insurance cover and bear the cost to a named place in your customer’s country. If you are agreeable to accept the cost and risk, the term “Delivered At Place” (name of place) would be the one to apply.

“Delivered Duty Paid” (DDP) may be applied in the case where you sell to your own company or subsidiary in the destination country, where the customs procedure and the payment of duty remains within your company as an importer.

Link Incoterm®








Our client is situated in an Arab country. We often sell goods ex works (EXW). Therefore we usually do not receive an air waybill, Bill of Lading or any other logistic receipt to evidence an export. This means that we add our VAT on to the invoice amount, with no objection from client's side. Now they request payment under a Letter of Credit.

What documents can we show the bank to evidence supply under Letter of Credit terms?




With a due diligence brain, you might become suspicious about this situation. Why is your customer in the Arab country happy to pay the exporter's country VAT? And if you don’t see where the goods actually go — how can you be certain they aren’t diverted to sanctioned markets or to an unauthorised end use? At least they haven’t offered to pay you in advance yet, that would get all alarm lights flashing!

Perhaps everything is fine though, your customer could be VAT registered in Switzerland as a business and undertaking the role of the exporter from Switzerland himself. We assume that you also do not see the customs export declaration. You are well advised to look into this more thoroughly though and ensure that you are not being named as the exporter on the customs declaration because if you are, that makes you legally responsible for the export regardless of selling EXW and charging VAT.

To address your question, if the customer wishes to pay you under a Letter of Credit but you cannot provide “normal” evidence of export ask for a Forwarder’s Certificate of Receipt (FCR) to be added as evidence that you have supplied the goods. Whoever picks up the cargo should be able to corroborate the pickup and collection. If it is a true EXW then your customer will advise you when the forwarder is going to collect and also arrange for the goods to be lifted from the floor to be loaded.

„To be stuck with the goods“ - that risk remains. Letters of Credit have firm expiry dates. If your client is late with or does not issue pick-up instructions to the forwarding company, you will not get the required FCR to submit for payment. To eliminate this risk ask for a payment against presentation of a FCR and/or a warehouse receipt. It will allow you to store the goods on you own initiative, get the receipt and get paid if no FCR is forthcoming resp. the time for presentation under the Letter of Credit is running out.


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