Documents
Letter of credit (L/C)
A bank's undertaking to pay the seller once it presents documents that comply exactly with the credit's terms.
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Under a documentary letter of credit, the buyer's bank promises to pay the supplier against specified documents, usually an on-board bill of lading, commercial invoice, packing list, certificate of origin and sometimes an insurance certificate. Almost all L/Cs follow ICC rules UCP 600. Banks check the documents, not the goods, so any discrepancy in names, ports, dates or descriptions can delay payment. Documents must normally be presented within 21 days after shipment and before expiry. Example: a Kuwait importer opens an L/C for machinery from Qingdao, naming Shuwaikh as the discharge port. The importer sends the draft L/C to the supplier and the forwarder before issue, so the shipment date, ports, transshipment terms and B/L type can be checked against the real routing.
Questions
Does a letter of credit guarantee the quality of the goods?
No. Banks only check that documents comply. To protect quality, require an inspection certificate from an independent company among the documents.
What if my L/C names Jebel Ali but the ship discharges at Khor Fakkan?
This can create a discrepancy. Talk to your bank and supplier early about amending the L/C or accepting the documents as issued.