Detailed Explanation of Letter of Credit Clause Content and Key Review Points

1. Creditworthiness of the Issuing Bank

The issuing bank of a letter of credit is the bank that opens the L/C at the request of the applicant (importer).

A letter of credit is a conditional payment guarantee provided by the issuing bank. Once the L/C is issued, the issuing bank bears primary liability for payment. Therefore, the creditworthiness and payment ability of the issuing bank become critical issues. Thus, it is necessary to understand the creditworthiness of the issuing bank.

2. Date of Issue

The date of issue is the date on which the issuing bank opens the L/C. It is generally expressed as "Date of Issue".

The L/C must clearly indicate the date of issue. If the L/C does not contain the words "Date of Issue", then the date of transmission (for telex/SWIFT L/Cs) or the date on the heading (for mail L/Cs) is regarded as the date of issue.

The date of issue should be clear, definite, and complete.

Determining the date of issue is very important, especially when it is used to calculate other periods or to determine whether a presentation date is after the date of issue.

At the same time, the date of issue indicates whether the importer has opened the L/C within the time limit stipulated in the contract.

3. Expiry Date and Expiry Place

The expiry date of a letter of credit is the last date on which the beneficiary may present documents to the bank. The beneficiary should present the L/C documents to the bank on or before the expiry date.

The expiry place is the location where the beneficiary must present the documents to the bank within the validity period. L/Cs issued from abroad usually stipulate the expiry place within China. If the expiry place is abroad, the beneficiary (exporter) must pay special attention and should present documents well in advance (approximately 7 days earlier for adjacent countries/regions like Hong Kong, Macau, Singapore, Malaysia etc.; 10-15 days earlier for distant countries/regions) to allow the bank time to send the documents to the designated bank at the expiry place within the validity period.

If the expiry place is abroad, it is best to suggest amending it to within China.

If the L/C does not specify an expiry place, the issuing bank should be asked for immediate confirmation. If the issuing bank fails to respond, the expiry place shall be deemed to be within China.

4. Applicant

The applicant of a letter of credit is the party (importer) who applies to the bank (issuing bank) to open the L/C as stipulated in the contract.

The applicant's details, including name and address, must be complete and clear.

5. Beneficiary

The beneficiary of a letter of credit is the party designated in the L/C who is entitled to use it, i.e., the exporter.

The beneficiary's details, including name and address, should be complete and clear. If there are errors or omissions, the issuing bank should be contacted immediately for confirmation, or the applicant should be asked to amend the L/C.

6. Documentary Credit Number

The L/C number is the issuing bank's reference number, which must be quoted in all business correspondence with the issuing bank. The L/C number must be clear and free of errors such as transposed characters.

If the L/C number appears multiple times within the credit, special attention should be paid to ensure consistency. Otherwise, an amendment should be requested.

7. Currency Code and Amount

The currency of the L/C amount should be freely convertible in the international market.

If the currency specified is not freely convertible, the beneficiary may consider whether to accept it.

The currency code should be the internationally recognized standard code for world currencies.

The L/C amount is usually written in the standard international format. For example, one million US dollars is written as USD1,000,000.00.

If the amount is expressed in both words and figures, they must be consistent.

If the amount appears in multiple places in the L/C, all instances must be consistent.