Estimated reading time: 3 minutes

Documentary credit practice often presents complex challenges. In many cases, Letters of Credit are issued with wording that fails to comply fully with UCP 600 provisions—particularly those governing the availability of credit, the nominated bank’s authority, and the conditions for drawing or negotiation. Such discrepancies can create uncertainty over which bank is authorised to honour or negotiate, delay document examination, and ultimately jeopardize payment under the LC.

A few examples are as follows:

Field 41a: Available with … By …
ANY BANK IN ____
BY NEGOTIATION
Drafts At: 21 DAYS FROM BL DATE
Drawee: NEGOTIATING BANK

Mistakes:

• A credit with a nominated bank, negotiated by agreement, should not require drafts drawn on the nominated bank. Negotiation involves purchasing drafts drawn on a bank other than the nominated bank and/or documents under a complying presentation. The drawee must be a bank other than the “negotiating bank“.
• If drafts are to be drawn on the nominated bank, the credit should be available with the nominated bank by acceptance, rather than by negotiation.

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Field 41a: Available with … By …
ANY BANK IN ___
BY ACCEPTANCE
Drafts At: 120 DAYS FROM BL DATE
Drawee: XYZ BANK (Issuing Bank)

Mistakes:

• A credit with a nominated bank by acceptance should not require drafts drawn on the issuing bank or another bank. The nominated bank cannot accept a draft drawn on another bank. Drafts must be drawn on the accepting bank, which is the nominated bank.
• If the issuing bank serves as the drawee, the credit should be available with the nominated bank by negotiation, rather than by acceptance. If the nominated bank serves as the drawee, the credit should be available with the nominated bank by acceptance instead of by negotiation.

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Field 41a: Available with … By …
XYZ BANK (Confirming Bank)
BY NEGOTIATION
Drafts At: 60 DAYS FROM BL DATE
Drawee: XYZ BANK (Confirming Bank)

Mistakes:

• A credit with a confirming bank by negotiation should not require drafts drawn on the confirming bank. Negotiation involves purchasing drafts drawn on a bank other than the nominated bank. (A confirming bank qualifies as a nominated bank.)
• The confirming bank itself sometimes makes this mistake when requiring applicants to draw drafts on it for a negotiation LC.
• When applicants draw tenor drafts on the confirming bank, the credit must be available with the confirming bank by acceptance instead of “by negotiation“.

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Field 41a: Available with … By …
ABC BANK
BY PAYMENT
Drafts At: SIGHT

Mistakes:

• A credit available by sight payment does not need to include drafts. Confirming banks sometimes make this mistake when they require applicants to draw drafts on them for a negotiation LC.
• When another bank serves as the drawee, the credit must be available with the nominated bank by negotiation instead of “by payment“.
• When applicants draw drafts from another bank, the credit must be available with the nominated bank by negotiation instead of “by payment“.
• A credit available by sight payment does not require drafts.

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Related Articles:

• Uniform Customs and Practice for Documentary Credits (UCP 600) – Key Rules and International Banking Applications
• Everything About Letters of Credit – Structure, Process, and Compliance Essentials
• SWIFT Message Glossary – Codes, Formats, and Documentary Credit Communication Standards

References:

1. International Chamber of Commerce (ICC) – UCP 600: Uniform Customs and Practice for Documentary Credits
2. International Chamber of Commerce – UCP 600 Guidelines and Commentary
3. SWIFT – Financial Messaging Standards and Global Trade Communication
4. Investopedia – Letter of Credit: Definition, Types, and Examples