What are the "soft terms" of the letter of credit?

What are the "soft terms" of the letter of credit?

01 What is a letter of credit?

Letter of credit refers to a written certificate issued by the bank to the exporter (seller) at the request of the importer (buyer) to guarantee the payment of the goods. It is a relatively common settlement method in international trade.

The Soft Clause of the letter of credit refers to some restrictive clauses stipulated in the letter of credit, or some of the clauses are unclear and unclear, so that the issuing bank has a basis for exemption from liability at any time, which is very unfavorable to the beneficiary.

If these "soft clauses" are not discovered in time during the L/C transaction, you may face the loss of "money and goods".

02 What are the common "soft terms"?
Letter of credit fraud in international trade is often done by adding restrictive clauses formulated by the buyer (applicant of the letter of credit) to the bank payment terms of the letter of credit, that is, the "soft terms" in the letter of credit.

In this way, the payment terms of the bank credit guarantee enjoyed by the seller become payment based on the terms determined by the buyer's commercial credit. The soft clauses in the letter of credit were originally added by the buyer to prevent the seller from defrauding or preventing the seller from providing goods that do not conform to the contract.

However, once these soft terms are loaded on the letter of credit, the irrevocable letter of credit becomes a revocable letter of credit, which is extremely harmful to the seller. my country's export enterprises must attach great importance to the soft terms of the letter of credit mainly as follows.

01 Clauses not in effect

For example, a letter of credit that needs to be notified by the issuing bank, or has to obtain a relevant power of attorney, or needs to be approved by the relevant local department to take effect.

02 Loss of cargo rights clause

For example, 1/3 bill of lading, air waybill.

03 Clauses that require the cooperation of the importer or its related parties

For example, unconventional goods inspection reports, quality inspection certificates and other terms that are premised on payment by other letters of credit.

04 Conditional and restrictive clauses

Examples include requiring a specific route, ship age, or submitting a specific type of shipping document.

05 Contradictory clauses

For example, the submission of intermodal bills of lading is allowed, but transshipment is prohibited.

03 How to avoid "soft terms"?

1 Carefully review documents, discover "soft terms" early, and request changes in a timely manner.

2. Choose a bank with a good reputation. Big banks tend to be more secure.

3 Choose a buyer with better credit, and use credit reports and other means to "know yourself and the enemy".