Purpose of Letter of credit (“LC”) is to give payment security to the beneficiary subject to documents presented under the LC complying with the requirements of the LC.

To check if documents are compliant, banks examine the required documents based on:

• The terms and conditions of the documentary credit.
• The applicable rules of UCP 600.
• The applicable content of ISBP 745.

A generic checklist is given below to assist parties involved in the transaction in preparing compliant documents. Kindly note the below checklist is only illustrative and not exhaustive.

Initial Scrutiny

1. All documents called for in LC are submitted.
2. All documents are submitted in the requisite number of copies.
3. Documents are issued and signed by the persons specified/required to issue those documents.
4. Documents, where necessary and stipulated, are dated. If they are dated, the dates should be consistent with the terms of LC.
5. Documents, where necessary and stipulated, are manually signed.
6. Material alterations/additions on documents are duly authenticated.
7. The requisite and stipulated documents are originals or marked as originals and appear to be signed.
8. All documents, on their face appear to be in compliance with the terms and conditions of the credit.
9. Shipment is effected within the time stipulated. If it is an installment credit whether the requisite quantity is shipped within the stipulated time schedule and is as per the terms of the LC.
10. Any partial shipment is effected? If so whether it was permissible under LC. If yes, ensure that the partial shipment effected is as per the terms of the LC.
11. Documents are presented at the place of expiry stipulated in the LC.
12. Documents are presented within the expiry date (validity) of the credit. If documents are presented to the nominated bank on an extended validity date in terms of provisions of Article 29(a) of UCP 600, the nominated bank should confirm on its covering schedule that the presentation at their counters was made within the time limits extended in accordance with Article 29(a) of UCP 600.

Bill of Exchange (Draft)

1. It should bear a date.
2. It should be drawn by the beneficiary or any other person authorized in this regard.
3. It should be signed by the drawer or his authorized representative.
4. It should be drawn unconditionally and should be free from any extraneous conditions and should contain the reference to LC.
5. It should be drawn for a specified amount and should be consistent with the terms of the drawing permitted in the LC.
6. It should be drawn payable to a specified payee as mentioned in LC and properly endorsed.
7. It should be drawn payable for tenor specified in the LC.
8. It must indicate that it is drawn under the subject LC.
9. It should, unless otherwise specified, be drawn in the same currency of invoice/LC.

Invoice

1. It should be made out by the beneficiary or other authorized person(s) as stipulated in the LC.
2. It should unless otherwise specified be made out in the name of the applicant.
3. Description of goods specified must correspond with the description in the LC.
4. The quantity of goods, unit prices, delivery terms etc. must correspond with the LC terms and be consistent with other relative documents.
5. It should be drawn in the same currency of LC, unless otherwise specified.
6. It should not include any charges which are not permitted by LC. As per the stipulations of LC, the gross value of invoice should not exceed the credit amount.
7. It should show deduction towards agency commission payable etc. as applicable.
8. Arithmetical calculations should be accurate, (compare unit price and quantity).
9. The final amount of invoice or the percentage of drawing as permitted in LC should correspond with the draft amount.
10. If partial shipments are effected, amount of drawings should correspond to proportionate quantities shipped (where only quantity is mentioned without unit prices etc.)
11. Invoice being a ‘documents of contents’, the details stated therein must correspond/be consistent with details appearing on all other documents.
12. It must confirm to facts like IEC No. and ITC(HS) classification No. etc. as stipulated in the LC.
13. If invoice is issued for an amount in excess of the amount permitted by credit (when not specifically prohibited by terms of LC), the nominated bank or the issuing bank has the option to accept a commercial invoice issued for an amount in excess of amount permitted by the credit, and its decision will be binding upon all the parties, provided the bank in question has not honoured or negotiated for an amount in excess of that permitted by the credit as per Article 18(b) of UCP 600.

Bill of Lading

1. Be issued by a named carrier or his authorized agent.
2. Bear a distinct number.
3. Indicate the place of issuance.
4. Indicate the date of issuance.
5. Be signed by the named carrier or his authorized agent.
6. Indicate the name of consignor and his address.
7. Indicate the name of consignee and his address.
8. Indicate brief description of goods being carried/shipped.
9. Indicate port of loading or taking charge (in case of Marine BL, it should indicate a definite port of loading and in other cases, it can be shown as an ‘intended’ port).
10. Name of the vessel and voyage number.
11. Be presented in full set of originals (full set comprises two or more originals, all of which are marked as ‘ORIGINALS’ and signed. The number of copies of originals issued is to be indicated on the BL itself). Similarly, transport documents marked as Original, Duplicate, Triplicate etc. are all to be treated as originals.
12. Meet all other stipulations of the credit.
13. Must indicate whether ‘Freight Prepaid’ or ‘Freight Payable’.
14. Must bear the number of the LC.

A Bill of Lading should not (Unless Otherwise Specified by Terms of LC)

1. Be a Charter party Bill of Lading.
2. Indicate that the carrying vessel is propelled by sail only.
3. Be issued by a freight forwarded (unless he himself acting as a carrier or his agent). However, if LC permits Freight Forwarder’s Receipt it can be accepted if issued by IATA approved agent.
4. Must not indicate that the goods are or will be loaded on ‘deck’. A clause on a transport document stating that the goods may be loaded on deck is acceptable, Article 26(c) of UCP 600.
5. Be a claused Bill of Lading.

Bill of Lading can (Unless Otherwise Prohibited or is Inconsistent with Other Terms of LC)

1. Be a short form or blank backed BL if the LC permits.
2. Indicate a place of taking charge is different from the port of loading and/or a place of final destination different from the port of discharge.
3. Indicate that the goods are carried in Container(s) Trailer(s) / or ‘LASH’ barge(s), if LC permits.
4. Indicate that the goods will be trans-shipped provided the same BL covers the entire carriage.
5. Be a ‘Freight Payable’ BL.
6. Evidence freight prepayment by a stamp or otherwise on BL to that effect like ‘Freight Prepaid’.
7. Bear reference by stamp or otherwise to the costs additional to freight charges.
8. Show clauses such as ‘shippers load and count’ or ‘said by shipper to contain’ etc. with reference to goods covered by the BL.
9. Show shipper as a third party other than beneficiary.
10. Be deemed as ‘Clean on Board’ if it is an onboard BL without any superimposed clauses or notations expressly declaring the defective condition of the goods and or the packaging.

Other aspects of BL

1. An ‘OnBoard’ BL must indicate the name of the carrying vessel/voyage number.
2. A transport document issued by a freight forwarder can be accepted provided freight forwarder has issued the same in his capacity as a carrier or his agent and all other requirements are met with and is issued by IATA approved agent.
3. Received for shipment BL can be accepted, if affixed with ‘ON BOARD’ notation duly signed or initialed and dated by the carrier or his agent.
4. If LC calls for a ‘Marine BL’ without specifying whether it should be ‘On Board; or ‘Received for shipment’, only ‘ON BOARD’ BL will be accepted.
5. Date of issue of BL / ‘ON BOARD’ notation should be dated on or prior to the shipment date permitted under the LC.
6. Shipping marks, gross/net weight etc. specified on BL must correspond to those specified in other documents.

Airway Bill or Airconsignment Note

1. Must show flight number and date.
2. Must show the name of the carrier.
3. Must be issued by a named carrier or his authorized agent.
4. Must indicate the place of issuance.
5. Must indicate the date of issuance.
6. Must be signed by a named carrier or his authorized agent (in case of HAWB (House Airway Bill) by the Air Cargo (Consolidator himself).
7. Must indicate the name of the consignor and address.
8. Must indicate the name of the consignee and address as per LC terms (and not that of the consignor or his order).
9. The AWB submitted must be ‘ORIGINAL No. 3’ meant for shipper/consignor.
10. Must indicate Airport of loading and discharge.
11. Must give a brief description of the goods being carried and should not be inconsistent with other documents.
12. Must comply with all other specific requirements of LC.
13. Must indicate ‘notify parties’ as stipulated in the LC.
14. Should not be claused (it should be clean AWB).
15. Unless prohibited by the LC, following are acceptable/permitted
    • Short form AWB or blank backed AWB.
    • Can bear reference by stamps or otherwise to cost, any thing additional to freight charges.
    • It can contain words like ‘said by shipper to contain’ or ‘shippers load and count’ etc.
    • It can show the consignor as a third party other than beneficiary.
16. It must show the shipping marks of packages, number of packages, gross weight, net weight etc. and they must be in accordance with other documents containing similar details.
17. It must indicate whether freight is prepaid or payable at destination.
18. In case of HAWB (whether specified) it must show the name of Airlines, Master Airway Bill number, the flight number, consolidator’s IATA registration number.
19. It should be remembered that unless credit calls for flight date, even if flight date is shown on AWB, the date of issue of AWB is considered as date of shipment.

Insurance Document

1. Must be issued only by Insurance Company or underwriters or their authorized agents.
2. It should not be issued by brokers.
3. It must be signed by the issuer.
4. It must be dated.
5. Date of issuance must be on or before the date of shipment or it must be evidenced by specific notation that the cover is effective from the date of shipment.
6. The currency of insurance must be same as the currency of LC.
7. Must indicate the name of the assured.
8. Must indicate brief details of the goods insured.
9. Must indicate the mode of conveyance (Air, Sea, Road etc.) the name of the vessel, voyage number etc.)
10. Must indicate the nature of risks covered and should be those specified in the LC.
11. Should be in a negotiable form.
12. Unless otherwise specified, should be issued for an amount of 110% of CIF/CIP value of the goods. If such value is not determinable from the documents on their face, it should be for the minimum amount of negotiation requested for or the amount of invoice value whichever is greater.
13. If issued in more than one originals, all originals must be submitted (no. of negotiable copies issued are indicated in the insurance policy/certificate).
14. Should be endorsed in blank by the assured, if required as per terms of LC.
15. Should indicate the port of shipment and destination or point of insurance coverage and point of termination of insurance coverage.
16. Should not contain any clause affecting the interest of the assured/assignees.
17. Must cover all additional risks as specified in the LC.
18. The goods are on ‘Deck’, Deck shipment risks such as jettisoning or washing over board should be covered.
19. If LC allows transshipment, such risk must be covered.
20. Claims should be made payable in India or in the specific city specified in the LC.

Other Documents

A letter of credit may call for variety of other documents like Health Certificate, Pre-shipment Inspection Certificate, Packing List, Shipping Company’s Certificate, Beneficiary’s declarations / undertaking etc. Whenever such documents are called for under LC, the following aspects must be checked in the documents.

1. Whether issued by the person or authority specified in the credit or authorized to issue. If no specific mention is made regarding issuer of the document, Bank can accept document issued by any person provided their data content is not inconsistent with any other stipulated document presented.
2. Whether dated and signed by the person/authority concerned.
3. Whether they relate to the goods/shipment covered by the documents or not.
4. Whether the document certifies the facts required as per LC or not.
5. Whether the document contains wordings or data content as specified in the LC or not.
6. Whether the details mentioned in such certificates/documents are consistent with other documents called for.

Certificate of Origin

1. It must be issued and signed by an independent authority such as a Chamber of Commerce etc. indicating the origin of goods, as per LC stipulations.
2. The country of origin certified must be as per LC requirement and consistent with the declaration given by the beneficiary in the invoice/other documents.
3. It must indicate the description of goods and should be consistent with other documents.
4. Details appearing in the Certificate of Origin must be consistent with the details appearing in the other documents.

Road, Rail or Inland Waterway Transport Document

1. Signed as required by UCP 600 article 24, noting that if an agent signs on behalf of a carrier, the agent must be named and indicate the capacity in which it is signing i.e., ABC Co. as agent for the carrier, XYZ Co.
2. Appear to indicate the name of the carrier.
3. Indicate the place of shipment and the place of destination stated in the documentary credit.
4. Indicate receipt of the goods by signature, stamp or notation.
5. Goods description does not conflict with the documentary credit.
6. Indication of freight payment is in accordance with the requirements of the documentary credit.
7. If the document does not state the number of originals, the number presented will be taken as the full set.
8. Road transport documents must appear to be the original for consignor or shipper.
9. Rail transport documents marked ‘duplicate’ will be accepted as originals.
10. Rail or inland waterway transport documents do not need to be marked as original in order to be accepted as original.
11. Data is not to conflict with that shown in any other document.
12. Otherwise meets the requirements of article 24