In international trade transactions, financial instruments such as letters of credit (LC), demand guarantees, and performance bonds are used to limit the risk of one or more parties to the trade deal. Such instruments, LCs in particular, are often regarded as equivalent to having a security deposit in cash. This is because of national and international regulations and laws, such as those laid down by the ICC, that mandate the settlement of dues to holders of LCs and similar documents. However, here are a few tips to help ensure you can readily exercise your LC at any time.
Have the original with you or know where it is
If your LC is not in electronic form, then you need to present the original when you make the demand for payment. If the document is lost or unavailable, there is no obligation for the issuing bank to provide a replacement, unless stipulated. Therefore, always know where your document is and make sure you can access it.
Know who the right signatory is and if/how they are available
The pandemic continues to cause disruptions. The authorized signatory for your document may not be available or may be available at an alternate location. Keep track of these things and the logistics that may be involved in getting to them if necessary.
Is the LC in the right place to serve?
LC’s will usually specify where they are to be presented for payment and you need to comply with this. But with travel restrictions and courier delays, what used to be a simple process can quickly get out of hand. So, know where you have to serve the document and make sure that alternate arrangements for getting the document to that location, such as electronic alternatives, are in place.
Is the bank open?
If the last day for the presentation is a bank holiday, usually you can still present the document on the next working day. If the bank is closed on a working day, depending on the rules governing your LC, you may be able to present the document during an extended window after that date. Be aware of the rules governing your LC.
When you cannot present the document for whatever reason
In such an event, make sure to document your efforts carefully to show that you have complied with the terms and requirements of the LC. This will work in your favor as you try to resolve the issue.
