LC Drafting Checklist: What to Review Before the Buyer’s Bank Issues It
Why the LC Drafting Stage Is So Critical
The drafting stage of a Letter of Credit (LC) is where your future payment security is locked in—or compromised. Once the buyer’s bank issues the LC, making changes becomes difficult, slow, and sometimes impossible. That’s why exporters must review the LC draft carefully before it’s officially issued.
A well-drafted LC = faster payment, fewer discrepancies, and no surprises.
What to Review in an LC Draft – Complete Checklist
| Checklist Item | What to Verify | Why It Matters |
|---|---|---|
| 1. Correct Beneficiary & Applicant Names | Exact legal names, no spelling errors | Mismatches can cause bank rejection |
| 2. Currency and Amount (Field 32B) | Total value matches contract | Incorrect figures delay payments |
| 3. Type of LC (Field 40A) | Irrevocable, confirmed, transferable? | Impacts payment security |
| 4. Latest Shipment Date (Field 44C) | Realistic logistics timeline | Avoids shipment after expiry |
| 5. Expiry Date (Field 31D or 44D) | Enough time post-shipment for docs | Late submissions = rejection |
| 6. Payment Terms (Field 41A/42C) | At sight, usance (30/60/90 days) | Affects cash flow and planning |
| 7. Description of Goods (Field 45A) | Matches commercial invoice exactly | Inconsistencies = discrepancies |
| 8. Required Documents (Field 46A) | Invoice, B/L, cert. of origin, etc. | Avoids incomplete presentation |
| 9. Additional Conditions (Field 47A) | Inspection clauses, packing info | Over-complicated = riskier |
| 10. Tolerance Clause (Field 39A) | +/- % on quantity/value allowed? | Adds flexibility for final shipment |
| 11. Transshipment & Partial Shipment | Allowed or not? | Affects logistics strategy |
| 12. Confirming Bank Instructions (Field 49) | Needed in risky markets | Adds extra payment guarantee |
| 13. Presentation Period (Field 48) | Days after shipment to submit docs | Too short = risk of delay |
| 14. Charges (Field 71B) | Who pays the banking fees? | Clarifies cost sharing |
| 15. Port of Loading / Discharge (Field 44E/F) | Matches shipping route | Wrong ports = automatic refusal |
Real-World Example: A Checklist That Saved the Deal
Case: A textile exporter in Turkey received an LC draft from a buyer in Nigeria.
✅ They reviewed:
- Latest shipment date: 10 days too early for production
- Discrepancy: Beneficiary name had “Ltd” missing
- Documents required: Insurance certificate not part of the contract
💡 Result: The exporter requested three corrections before issuance. If they hadn’t, they would have faced automatic rejection—even after delivering the goods!
How to Interpret Key Clauses
- « At Sight » in Field 42C = Bank pays immediately after checking documents
- « Irrevocable » in Field 40A = LC cannot be amended/cancelled without your consent
- « Partial shipment not allowed » = You must ship everything at once
- « Documents to be presented within 21 days after shipment » = You must deliver documents to your bank within that window, or risk non-payment
Top Mistakes Exporters Make During LC Draft Review
❌ Not reviewing the draft at all – Many exporters assume the buyer’s bank gets it right
❌ Ignoring tolerance fields – Can lead to rejection for minor over/under shipments
❌ Skipping Incoterms clarification – Misunderstandings around FOB, CIF, EXW can derail logistics
❌ Overloading with documents – Every extra doc is a risk of discrepancy
Pro Tips for Exporters
- 📌 Use a side-by-side checklist: Match every LC clause with your sales contract
- 📌 Involve your freight forwarder: Their input on transshipment and routing helps avoid errors
- 📌 Ask your bank for a pre-check: Most issuing or advising banks offer free review services
- 📌 Confirm acceptance via SWIFT MT799: This helps secure final buyer approval before MT700 is issued
FAQs: LC Drafting Checklist
Q1: Can I ask for changes after the LC is issued?
A: Yes, but only via official amendments—which can delay shipments and create negotiation issues.
Q2: What happens if shipment is late but LC terms aren’t changed?
A: Your documents will be discrepant and payment may be delayed or refused.
Q3: Who pays the LC amendment fee?
A: Usually negotiated in the contract—if not specified, it’s typically split or on the applicant.
Q4: Is a pre-advised LC the same as a draft?
A: No. A draft is reviewed before issuance; pre-advice is a heads-up that the LC is coming.
Q5: Can I add a tolerance clause after issuance?
A: Only through a formal amendment and with the buyer’s bank approval.
Conclusion: Review Now, Relax Later
The time to protect your payment isn’t after the LC is issued—it’s before. Use this LC drafting checklist to make sure the document works in your favor. It only takes 30–60 minutes of thorough review, but it can save weeks of headaches and thousands in delayed payments.
Your rule of thumb? If it’s not in the LC, the bank won’t honor it—no matter what the buyer promised.
