Kim's exporter-friendly Checklists to ensure conflict-free documentation for complying presentation

[LC VIEWS Newsletter N0.86; January 2007]

A Selfless Exporter-Friendly Banker
His gift to the trade world – UCP checklists as business aids

Checklists may be helpful when you are to make the LC documents. I should start by saying however that checklist does not do it alone. Checklists are based on the rules as reflected in e.g. UCP 600 but as article 1 clearly indicates: “[the rules] are binding on all parties thereto unless expressly modified or excluded by the credit”. Effectively this means that the rules can be changed by the LC.

Therefore first check: When receiving the LC read it carefully to ascertain that you will be able to obtain the required documents within the time limits stipulated. If there are clauses in the LC that you are unsure about, do contact your Trade Finance banker and/or the party that are to issue the document – e.g. your insurance company. A checklist will not help you, if e.g. the LC calls for risks to be covered that the insurance company are not prepared to cover.

Subsequent Checklists

Commercial Invoice Checklist

Invoice, vital for payment purpose
Kim’s checklist, vital for invoicing purpose

• This checklist is based on both UCP 600 and ISBP.

When an LC calls for a commercial invoice the bank will examine it in accordance with UCP 600 article 18 and ISBP §§ 57-67.

• Where the LC calls for presentation of “Invoice”, “Commercial Invoice or the like, an invoice may be titled in a number of ways e.g.:

- Commercial invoice
- Customs invoice
- Tax invoice
- Final invoice
- Consular invoice

but not:

- Pro-forma invoice
- Provisional invoice

and similar

• The invoice must be issued by the beneficiary mentioned in the LC.

(An exception is where the LC is transferable)

• The invoice must be issued to the applicant mentioned in the LC.

(An exception is where the LC is transferable)

• The addresses of beneficiary and applicant in the invoice need not be the same as those mentioned in the LC, as long as it is within the same country.

Contact details (phone, fax etc.) of beneficiary and applicant mentioned in the LC need not appear in the invoice – and if they do appear they need not be identical.

• The invoice must be in the same currency as the LC.

3 examples:

• The description of goods in the invoice must correspond with that mentioned in the LC.

This means that it need not be a mirror image, and the information may appear in different places in the invoice.

• The invoice need not be signed or dated.

• The invoice must reflect the goods that have actually been shipped. So unless partial shipments are prohibited it is acceptable that only a part of the goods mentioned in the LC is reflected in the invoice.

• The invoice must not show goods not mentioned in the LC. This rule applies even if said goods are free of charge (samples, brochures etc.)

• The invoice must evidence the value of the goods shipped – taken into account unit prices etc. that are mentioned in the LC.

• Invoices showing “discounts” and “advance payments” are acceptable.

• Trade terms:

* If a trade term is mentioned as part of the goods description if must be reflected in the Invoice.

* If the trade term mentioned in the LC specifies the source (e.g. CFR Hong Kong Incoterms 2000) the invoice must mention the same source.

* If the trade term mentioned in the LC does not specify the source (e.g. CFR Hong Kong), it is acceptable that the invoice specifies the source (e.g. CFR Hong Kong Incoterms 2000).

Insurance checklist

Insurance, necessary for trade safety
Kim’s checklist, necessary for ensuring insurance document’s clarity

• This checklist is based on both UCP 600 and ISBP.

When an LC calls for an insurance document the bank will examine it in accordance with UCP 600 article 28 and ISBP §§ 170-180.

• The insurance document must be issued and signed by

- The insurance company, an underwriter, or

- their agents or proxies (for an on behalf of the insurance company or underwriter)

• If the insurance document is issued in more than one original, all originals must be presented.

• Cover notes are not acceptable

• If the LC calls for an “Insurance certificate” but instead “Insurance policy” is presented, the bank will accept the policy (but not visa versa).

• The insurance document must not be dated after shipment – unless it is apparent from the insurance document that cover is effective latest from date of shipment.

• The insurance amount must be in the same currency as the LC.

• The insurance coverage must appear from the insurance document.

• The insurance must be at least 110% of the CIP/CIF value of the goods. (Under CIP/CIF it is the seller’s obligation to insure the goods. Therefore in such case the LC will stipulate insurance requirement. For more information on Incoterms, visit Incoterms on lcviews.com)

• The insurance document must show that insurance covers at least between the places/ports mentioned in the LC.

• Insurance documents may refer to an “exclusion clause”.

Exclusion clauses are natural parts of the insurance industry, so standard insurance terms like Institute Cargo Clauses (A) will have a number of “exclusions” build in. This is acceptable.

• It is acceptable that the insurance document shows that it is subject to a franchise. This does not apply if the LC says that cover is “irrespective of percentage”.

• The insurance cover must be based on the full amount of the goods as reflected in the invoice.

E.g.

• Or the insurance must be based on the CIP/CIF amount. This can be reflected in the LC and in the invoice in a number of ways, but in general it will consist of the following elements: