The seller should carefully assess the credit-worthiness of the buyer, the buyer’s bank, and the risk in the buyer’s country. Normally, it is the seller’s bank which should assist the seller in the inquiry.
Financial strength of the bank issuing the letter of credit must be examined, and if necessary a credit may have to be confirmed (for instance if a smaller bank is involved in the transaction, depending on the country of origin, the credit may have to be confirmed by a large bank).
2. The seller should carefully review the letter of credit to make sure that all the details and conditions stipulated can be met (type of credit, schedules of shipment, expiry date, quality and quantity of goods6, packaging and documentation). Documentary credit is a separate transaction from the underlying sales contract. It is usually during the negotiation stage of the sales contract that the responsibilities of both the seller and buyer are defined and most of the terms and conditions of the documentary credit are agreed upon. Therefore, it is very important for the seller to be fully aware of all terms and conditions that need to be fulfilled before the application for a letter of credit is made. It is the seller’s responsibility to examine the letter of credit thoroughly to assure its workability (he may get the assistance of a forwarder).
6 Article 39 of UCP 500 allows, unless otherwise stipulated, for a variance in the quantity of plus or minus
5% against what is stipulated in the letter of credit. This variance is not authorized if the quantity of goods in the letter of credit is stipulated in specific number of packing units or individual items. But in any case the amount of drawing should not exceed the credit amount. If the letter of credit stipulated “about” or “approximately”, then a 10% variation in the amount, or quantity, or unit price is allowed.
3. All aspects of the letter of credit must conform with the terms agreed upon and should match the terms and conditions of the