LETTER-OF-CREDIT-SPEC

Letter of Credit specification UCP 600 detailed lifecycle international trade.

Definition

L/C specification lifecycle UCP 600: (1) Application: applicant (buyer/importer) submits L/C application to issuing bank specifying terms (amount, currency, expiry, beneficiary, port loading + discharge, goods description, required documents, partial shipments allowed/not allowed, transhipment allowed/not allowed, presentation period, latest shipment date, etc.). (2) Issuance: issuing bank issues L/C via SWIFT MT700 (Issue Documentary Credit) to advising bank in beneficiary's country. (3) Advice: advising bank verifies authenticity (signature/SWIFT key) + advises beneficiary. (4) Confirmation optional: confirming bank adds its undertaking to issuing bank's, beneficiary gets payment from confirming bank against documents (used when issuing bank country risk concerns). (5) Shipment: beneficiary ships goods per L/C terms, obtains transport document (B/L Bill of Lading + Air Waybill + CMR + etc.), commercial invoice, packing list, insurance certificate, certificate of origin, inspection certificate, etc. (6) Presentation: beneficiary presents documents to advising/nominated bank within presentation period (typically 21 days post-shipment, before L/C expiry). (7) Examination: nominated bank + issuing bank examine documents per UCP 600 Article 14 (apparent compliance only, no extrinsic evidence), 5 banking days maximum. (8) Discrepancy: if documents not strictly compliant (discrepancies), issuing bank may refuse, notify beneficiary, hold documents at applicant's disposal. (9) Honour: if compliant, issuing bank honours via payment (sight L/C) or acceptance (usance L/C) or deferred payment. (10) Settlement: payment proceeds beneficiary -> applicant reimburses issuing bank.

Origin

UCP first published 1933 by ICC ; UCP 600 published 2007 ICC Publication 600 ; ~USD 2.5T+ annual global L/C volume.

Example in context

Chinese exporter ships textile goods to Italian importer USD 500K: Italian importer applies issuing bank Intesa Sanpaolo Milan for L/C ; Intesa issues MT700 to advising bank Bank of China Shanghai ; exporter ships goods FOB Shanghai, obtains B/L + invoice + packing list + Chamber of Commerce Certificate of Origin ; presents documents Bank of China within 21 days ; documents compliant, Intesa honours via SWIFT MT202 USD 500K, exporter paid, importer reimburses Intesa.

Related terms

• UCP 600 detail — rules detailed.
• Documentary Collection spec — alternative instrument.