Letter of Credit Advising/Confirmation Letter of Credit Advising Flow When a Letter of Credit (LC) is issued, the LC Issuing Bank sends the LC either to its branch office or correspondent bank, which is normally located in the seller’s (beneficiary) country. The branch office or correspondent bank that receives the LC is known as the Advising Bank.
The roles of the Advising Bank are:
To authenticate the LC to ensure that the LC comes from a genuine source. Authentication is either in the form of signature verification (for hardcopy LC) or via SWIFT authentication; and
To inform the seller on the arrival of LC in his favour once the LC is ready for collection.
The seller can request the buyer to specify his own banker as the Advising Bank. However, if the seller’s bank does not maintain correspondence relationship with the Issuing Bank, the Issuing Bank may appoint another bank as the Advising Bank, which may in turn utilises the service of the seller’s bank as the second Advising Bank.
An Issuing Bank that utilises the services of an Advising Bank or second Advising Bank to advise a LC must use the same bank to advise any subsequent amendment(s).
If there is an amendment to the LC, the terms and conditions of the original LC will remain in force until the seller communicates his acceptance on the amendment to the Advising Bank or present documents that comply with the amended terms.
What should Seller do when he receives Incoming Letter of Credit? There are occasions in which errors are found in the terms and conditions of the LC. Such errors may result from the buyer’s (applicant) mistake when he prepares the LC application or the Issuing Bank when the LC is processed and issued.
When a seller receives an incoming LC in his favour, he should perform the following checks to protect his own interest:
1. 2. 3. 4. 5. 6. 7.
The names and addresses are complete and in order. The terms and conditions of the LC conform to what have been agreed to in the sales contract. The LC amount, unit price and goods description are in order. The percentage of insurance cover (if applicable). The latest shipment date, presentation date and LC expiry date can be complied with easily. The types of documents called for under the LC are obtainable. It ensures that it does not contain unfavourable payment terms that do not conform to the LC.
This document is for information only and is designed to provide you with a general description of the trade products and services in Singapore. The information in this document relates to services offered to clients as of April 2010 and may be subject to change in the future; it is purely illustrative in nature and therefore does not contain or cannot result in any contractual or non-contractual obligation or liability of United Overseas Bank Limited and/or any of its affiliates. United Overseas Bank Limited Co. Reg No. 193500026 Z Page 1 of 2
8. The LC is subject to the latest version of the Uniform Customs and Practice for Documentary Credit.
No matter how minor a documentary discrepancy could be, its occurrence can delay or prevent payment under the LC. If a seller is in doubt on the LC terms and conditions, it is prudent for him to approach his banker for further clarification. Subsequently, he may proceed to request for an amendment from the issuing bank.
What is Letter of Credit Confirmation? When an LC is issued, the Issuing Bank may request the Advising Bank to add its confirmation on the LC. By agreeing to add the confirmation, the Advising Bank will become the Confirming Bank and undertakes to pay the beneficiary (seller) if all the terms and conditions of the LC are complied with. Such undertaking from the Confirming Bank is separate and in addition to the undertaking given by the Issuing Bank.
LC Confirmation is usually requested if the seller is not comfortable with the creditworthiness of the Issuing Bank, and/or is concerned over the buyer’s country risk. In return, the seller is required to pay an LC confirmation fee to the Confirming Bank.
By adding confirmation, all subsequent negotiations should be restricted to the Confirming bank. If the seller chooses to negotiate the LC through another bank, he will lose the rights and benefits of having a confirmed LC.
This document is for information only and is designed to provide you with a general description of the trade products and services in Singapore. The information in this document relates to services offered to clients as of April 2010 and may be subject to change in the future; it is purely illustrative in nature and therefore does not contain or cannot result in any contractual or non-contractual obligation or liability of United Overseas Bank Limited and/or any of its affiliates. United Overseas Bank Limited Co. Reg No. 193500026 Z Page 2 of 2
