How to Prepare LC Documents: Step-by-Step Guide and Templates

A Letter of Credit (LC) is a cornerstone of secure international trade, ensuring exporters receive payment while protecting importers until all required documents are presented. The UCP 600 is a set of rules that govern the use of letters of credit in international trade. From my 18 years of experience assisting exporters while working in trade finance at a bank, I have found that even minor mismatches in LC documents can delay payments by days or weeks. I prepared this guide to help you prepare LC documents correctly. I also provide step-by-step instructions, practical templates, and tips to prevent common mistakes so your transactions proceed smoothly and on time. 

📄 Understanding the Letter of Credit (LC)

A Letter of Credit (LC) is a financial instrument issued by a bank on behalf of a buyer, guaranteeing payment to the seller upon presentation of specified documents that comply with the terms and conditions set forth in the LC. This mechanism is widely utilized in international trade to mitigate risks associated with transactions between parties in different countries.

Types of Letters of Credit

• Revocable LC: Can be amended or canceled by the buyer or issuing bank without prior consent of the beneficiary.

• Irrevocable LC: Cannot be altered or canceled without the agreement of all parties involved.

• Confirmed LC: An additional guarantee provided by a second bank (usually in the seller's country), ensuring payment even if the issuing bank defaults.

• Sight LC: Payment is made immediately upon presentation of compliant documents.

• Usance (Time) LC: Payment is made after a specified period following the presentation of compliant documents.

Step 1: Understanding LC Requirements

Before preparing documents, carefully read the LC issued by the bank. Key points to note include:

• Beneficiary: Who is entitled to payment.

• Amount: Maximum value covered.

• Expiry date: Last date for document submission.

• Documents required: Typically includes commercial invoice, packing list, bill of lading, insurance certificate, certificate of origin, and any inspection certificates.

• Terms and conditions: Shipment terms, partial shipments allowed, transshipment clauses, etc.

Understanding these requirements helps ensure accuracy and compliance, which is crucial for smooth payment.

Step 2: Collecting Required Documents

Here is a list of essential LC documents frequently requested by banks:

1. Commercial Invoice

   • Must match the LC exactly in terms of goods, quantity, price, and currency.

   • Include seller & buyer details, LC reference, and invoice number.

2. Packing List

   • Shows the number of packages, dimensions, weight, and marks.

   • Helps banks and customs verify shipment details.

3. Bill of Lading (B/L)

   • Issued by the shipping company.

   • Confirms that goods are loaded on the vessel.

   • Should match the LC in terms of port of loading, port of discharge, and description of goods.

4. Insurance Certificate (if required)

   • Covers shipment risk during transit.

   • Must mention the correct incoterms (e.g., CIF, CFR).

5. Certificate of Origin

   • Confirms where the goods are manufactured.

   • Sometimes required to qualify for preferential duty rates.

6. Inspection Certificate (if applicable)

   • Issued by an authorized inspection agency.

   • Confirms quality, quantity, and compliance with contract specifications.

7. LC Document Checklist

   • Helps ensure all documents are prepared and submitted accurately.

💡 Pro tip: Discrepancies between LC terms and documents are the most common cause of delayed payments. Use a checklist to verify every item before submission.

Step 3: Preparing LC Documents – Step by Step

1. Draft the Commercial Invoice

• Include LC number, date, buyer & seller details.

• Ensure description, quantity, and price of goods match the LC.

• Highlight terms of shipment and payment.

2. Create the Packing List

• Specify the number of packages, weight, dimensions, and marks.

• Match the description of goods in the commercial invoice.

3. Obtain the Bill of Lading( Transport Document)

• Submit shipping instructions to the carrier.

• Verify ports of loading and discharge.

• Check for any transshipment clauses.

4. Get Insurance Certificate (if required)

• Cover risks during transit.

• Ensure coverage amount matches LC requirements.

5. Arrange Certificate of Origin and Inspection Certificate

• Use authorized agencies for certification.

• Verify all details match LC specifications.

6. Review and Verify Documents

• Compare every document with LC terms.

• Use a checklist to ensure completeness and accuracy.

7. Submit Documents to the Bank

• Submit within the LC validity period.

• Keep copies for your records.

LC Document Templates You Can Use

To simplify the process, you can use the following practical templates:

1. LC Application Template

   • Includes applicant and beneficiary details, LC amount, currency, expiry date, shipment terms, and required documents.

2. Commercial Invoice Template

   • Shows product description, quantity, unit price, total amount, LC reference, and seller/buyer details.

3. Packing List Template

   • Lists items, quantity, gross/net weight, dimensions, and package marks.

4. Bill of Lading Template

   • Includes shipper & consignee, vessel name, port of loading/discharge, number of packages, and signatures.

5. LC Document Checklist Template

   • Ensures all required documents are ready for submission.

6. LC Charges Calculation Template

   • Helps calculate bank charges, commission, and other fees.

SEO tip: Offering downloadable PDF or Excel versions of these templates will attract more visitors and increase engagement.

Common Mistakes to Avoid

1. Mismatch of details: Even small discrepancies can cause the bank to reject documents.

2. Late submission: Submit documents before the LC expiry date.

3. Missing documents: Ensure every document requested by the LC is included.

4. Incorrect signatures: Banks require authorized signatures on specific documents.

5. Ignoring transshipment or partial shipment clauses: Always follow LC terms strictly.

Additional Tips for Smooth LC Processing

• Double-check all dates, amounts, and descriptions.

• Keep multiple copies of each document.

• Communicate with your bank early if there are any doubts or required clarifications.

• Understand applicable charges: LC processing fees, commission, postage, or courier costs.

Preparing LC documents correctly is essential for hassle-free international trade. By following this step-by-step guide, using the templates, and carefully reviewing all details, exporters can minimize discrepancies and ensure timely payments.

Remember, accuracy and compliance with LC terms is the key to a smooth transaction. Using checklists, sample templates, and practical guides makes the process easier, faster, and more reliable.

Further recap:

Step-by-Step Guide to Preparing LC Documents

1. Review the Letter of Credit

Upon receiving the LC, thoroughly examine its terms to ensure they align with the sales contract. Key aspects to verify include:

• Applicant and Beneficiary Details: Ensure names and addresses are accurate.

• Amount and Currency: Confirm the specified amount and currency match the agreement.

• Expiry Date and Place of Presentation: Note the deadline for document submission and the location for presentation.

• Documents Required: List all documents stipulated in the LC, such as commercial invoice, bill of lading, packing list, certificate of origin, and insurance certificate.

2. Prepare the Required Documents

Based on the LC's stipulations, prepare the following documents:

• Commercial Invoice: A detailed bill provided by the seller to the buyer, listing goods sold, their value, and terms of sale.

• Packing List: A detailed list of the goods being shipped, including descriptions, quantities, and packaging details.

• Bill of Lading: A transport document issued by a carrier acknowledging receipt of cargo for shipment and, when bearing an “On Board” notation, confirming that the goods have been physically loaded onto the vessel for carriage.

• Certificate of Origin: A document certifying the country where the goods were manufactured.

• Insurance Certificate: A document proving that insurance coverage is in place for the shipment.

3. Ensure Document Compliance

Each document must strictly adhere to the terms and conditions outlined in the LC. Discrepancies, even minor ones, can lead to rejection of the documents and delay payment. Utilize a checklist to verify that all requirements are met.

4. Submit Documents to the Bank

Once all documents are prepared and verified, submit them to the nominated bank for examination. The bank will review the documents to ensure they comply with the LC's terms before forwarding them to the issuing bank.

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Understanding LC Charges

Several fees are associated with the issuance and processing of a Letter of Credit:

• Issuance Fee: Charged by the issuing bank for creating the LC.

• Advising Fee: Charged by the advising bank for notifying the beneficiary of the LC.

• Confirmation Fee: Charged if the LC is confirmed by another bank, providing additional security to the beneficiary.

• Document Examination Fee: Charged for reviewing the submitted documents.

• Payment/Acceptance Fee: Charged for processing the payment or acceptance under the LC.

These fees can vary depending on the banks involved and the complexity of the transaction. It's essential to clarify all applicable charges upfront to avoid surprises.

Document	Description	Compliance Check
Commercial Invoice	Detailed bill listing goods sold and terms	✅
Packing List	List of goods being shipped with details	✅
Bill of Lading	Carrier's acknowledgment of cargo receipt	✅
Certificate of Origin	Certifies the country of manufacture	✅
Insurance Certificate	Proof of insurance coverage for the shipment	✅

🔍 Common Discrepancies to Avoid

• Inconsistent Descriptions: Ensure that descriptions of goods match exactly across all documents.

• Incorrect Dates: Verify that shipment and document dates align with the LC's requirements.

• Mismatched Amounts: Confirm that the amounts stated in the documents correspond to the LC's terms.

 Final Tips for Successful LC Transactions

• Early Preparation: Start preparing documents well in advance to account for any unforeseen issues.

• Professional Assistance: Consider consulting with trade finance experts or legal advisors to navigate complex LC terms.

• Regular Communication: Maintain open lines of communication with all parties involved, including banks and logistics providers.

FAQ Section :

Q1: What are the most common LC document mistakes?
A: Mismatched details between the invoice and LC, missing signatures, and incorrect shipment dates are the most frequent issues causing delays.

Q2: Which documents are required under a typical LC?
A: Most LCs request a commercial invoice, packing list, bill of lading, insurance certificate, certificate of origin, and sometimes an inspection certificate.

Q3: Can I submit documents late under an LC?
A: No, submitting documents after the LC expiry date usually leads to non-payment. Always verify dates and plan submissions ahead.

Q4: What is the difference between sight LC and usance LC?
A: A sight LC pays immediately upon document compliance, whereas a usance (time) LC pays after a specified period post-document acceptance.

By following this LC documentation process and using the step-by-step infographics above, exporters and importers can ensure accuracy, compliance, and timely payments in every Letter of Credit transaction.

Want to learn more? Read our related guide on Transshipment under UCP 600

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