Letter of Credit Amendment

Letter of Credit amendment: What’s this about?

So this is about amending the letter of credit or LC which exporters receive from applicants (buyers). Now what it is to be amended in LC, there must be something. As it is about, LC consists of fields describing the conditions what exporters must meet to claim proceed (money) from bank. And if an exporter does meet all the conditions mentioned in LC, the LC issuing bank must pay the LC amount following the presentation of all required documents. However, if exporters fail to meet any of these conditions mentioned in LC, they might be in deep trouble. For, now the bank have the right not to pay to the exporter at all. Therefore, when an LC is received by exporter, they must scrutinize all these LC conditions to find that there is no such condition in any of these LC fields the exporter cannot meet. If such conditions are found, it is called LC discrepancy. When the LC is revised as requested by exporter to amend these discrepancies, then it is regarded as LC amendment. It is a very common phenomena in international trade. Any exporter doing trade in LC payment term should expect such situations.

What these discrepancies look like:

The discrepancy of LC may come in different form, let’s consider the situation found below:

In this exemplary LC, the exporter found discrepancies in field 43P and 43T. As these fields describe that partial shipment is prohibited and transshipment is not allowed. However, (for field 43T) from Chittagong port, it is impossible to ship your consignment to Istanbul by sea without transshipment. (For field 43P) The exporter must be in a situation that he/she wants to ship the goods in partial shipment. Therefore, this exporter must request the applicant to change/amend these conditions. Otherwise, he/she would fail to meet these conditions which will result in costly for exporter.

How to Request for Letter of Credit amendment:

Typically, an exporter can send an LC amendment request by simply writing an email to the applicant. For the above mentioned case: the LC amendment request might look like:

Please revise the LC on the following instructions:

This example is not the standard. An amendment request can be made in other ways too. But the information sent must convey the instruction what should be written instead of the discrepant descriptions. After receiving the amendment request, the applicant notifies and instructs about the amendment to the LC opening bank.  Finally, the bank resend the amended LC to exporters’ bank.

Best Practices in LC Amendment:

LC is sent and received by bank through SWIFT gateway. That is why, bank charges every time to send an LC. As a result, an applicant would also have to pay charges for sending the amended LC. Therefore, it is the best practice to send a draft LC to the exporter. So the exporter could suggest/advise the amendment before the real LC actually is sent.

An Exporter Must Remember:

As an exporter, one must remember that he/she should not arrange goods shipment before being 100% confirmed to be able to meet all LC conditions. So if the situation arise in the process of shipment that a revision is necessary in LC, exporter must request for an amendment. For example, if such situation arises that the actual date of shipment is to be delayed for some unavoidable situation, exporter must request to increase the latest date of shipment field (No. 44C) before the ship happens to sail. Therefore, an exporter must fully comprehend the LC conditions and other descriptions. In this case, there should always be a professional involved in LC handling process.

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