In simple words:
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The exporter ships goods → prepares documents (invoice, bill of lading, packing list, certificate of origin, insurance, etc.). How the electronic bill of lading (eBL) is transforming digital trade.
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These documents are submitted to the bank for payment under the LC.
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The negotiating bank checks the documents carefully against the LC terms (as per UCP 600 rules).
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If documents are complying, the bank “negotiates” = advances money or purchases the draft/documents from the exporter.
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Later, the bank sends them to the issuing bank abroad and gets reimbursed.
Key Features of Negotiation:
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Only possible if the LC is available by negotiation.
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Involves scrutiny of documents for discrepancies.
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Provides faster payment to the exporter (before the issuing bank settles).
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Shifts risk of payment to the bank if documents are clean.
Here’s a clear, step-by-step of negotiation of export documents under a Letter of Credit (LC):
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LC issued & received
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Buyer’s (issuing) bank issues the LC in your favor.
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You (exporter) check every term: latest shipment date, expiry & place of expiry, presentation period (default 21 days after shipment), docs required, BL consignment, Incoterm, insurance, drafts/tenor, “available by negotiation,” nominated bank, confirmation, etc.
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Amendments (if needed)
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Ask the buyer to amend any impractical terms before shipment (e.g., impossible inspection, wrong port, conflicting data).
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Ship the goods as per LC
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Book carrier space, comply with packing/marking, get inspection if required, arrange insurance if LC/Incoterm requires it (e.g., CIF/CIP).
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Obtain all required documents
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Typical set: Commercial Invoice, Transport Doc (B/L or AWB), Packing List, Certificate of Origin, Insurance Policy/Certificate, inspection/analysis certificates, draft (if required), etc.
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Ensure all data strictly matches the LC (names, quantities, dates, Incoterms, description).
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Pre-check before presenting
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Do a strict line-by-line check against the LC and UCP 600 standards. Correct any fixable issues (typos, missing signatures, stale doc, wrong consignee).
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Present documents to the nominated/negotiating bank
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Present within LC expiry and presentation period.
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Include cover schedule and instructions (sight or usance; with/without recourse expectations; request for negotiation).
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Bank examines the documents
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The negotiating bank checks docs against LC and UCP 600.
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Banks have up to 5 banking days after the day of presentation to determine compliance.
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If documents are complying
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Negotiation happens: the bank gives value (pays/advances) to you.
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Sight LC: paid immediately (subject to bank policy).
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Usance/Deferred LC: bank may accept/undertake to pay at maturity or discount the receivable.
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Without recourse if the bank added confirmation or the LC expressly allows; otherwise typically with recourse.
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If discrepancies are found
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Bank notifies discrepancies. You choose:
a) Correct/replace the documents (if possible), or
b) Authorize the bank to send documents on approval/waiver to the issuing bank, or
c) Withdraw docs. -
If the issuing bank/buyer waives discrepancies, payment proceeds; if not, documents may be refused.
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Dispatch to issuing/confirming bank
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Negotiating bank forwards the documents and claims reimbursement (directly from issuing bank or via a reimbursing bank, per LC instructions).
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Issuing bank examination & reimbursement
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Issuing bank re-examines. If clean (or discrepancies waived), it reimburses the negotiating/confirming bank.
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If refusal, negotiating bank may exercise recourse (if negotiated with recourse).
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Importer pays & takes up documents
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Issuing bank releases documents to the buyer (often against payment/acceptance), enabling cargo release at destination.
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Post-negotiation housekeeping
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You reconcile proceeds, bank charges, interest/discount costs, and file documents for audit/tax/export incentives.
Quick distinctions
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Negotiation: Bank gives value against complying LC docs and seeks reimbursement from issuing bank.
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Collection (URC 522): Bank only handles documents for payment/acceptance; no LC undertaking—higher payment risk for exporter.
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Discounting: Early funding of a deferred payment/accepted draft.
Pro tips to avoid refusals
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Align shipment & doc dates (no “stale” documents).
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Ensure BL consignment/notify party exactly as LC states.
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Keep descriptions, quantities, marks identical across all docs.
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Respect presentation period and place of expiry.
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Use a document checklist tied to each LC clause.
Export Documents Negotiation Checklist
Before Shipment
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Check LC terms carefully (latest shipment date, expiry, presentation period, documents required, Incoterm, payment tenor, availability “by negotiation”).
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Request amendments if terms are impractical (wrong port, conflicting data, impossible certificates).
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Book shipment in time (carrier, insurance, inspection if required).
After Shipment – Document Preparation
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Commercial Invoice – Matches LC description, currency, value, terms, consignee.
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Transport Document (B/L, AWB, etc.) – Correct consignee, notify party, shipped-on-board, clean, within shipment period.
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Packing List – Matches invoice, marks & numbers, HS codes if required.
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Certificate of Origin – Issued by chamber/authority as per LC.
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Insurance Document – Coverage, percentage, and risks exactly as per LC.
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Other Certificates – Inspection, phytosanitary, analysis, etc.
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Draft/ Bill of Exchange (if required) – Correct tenor (sight/usance), signed.
Before Submission to Bank
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Cross-check all documents line by line with LC clauses (no spelling/date/figure mismatches).
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Confirm presentation period (default = within 21 days of shipment, but not later than LC expiry).
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Attach covering schedule for bank with clear instructions (request negotiation).
Bank Examination
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Bank has 5 banking days to examine.
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If complying, bank negotiates (pays/discounts/accepts).
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If discrepancies, decide whether to:
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Correct and resubmit, or
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Send on approval/waiver basis, or
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Withdraw documents.
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Post-Negotiation
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Bank forwards docs to issuing/confirming bank.
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Track reimbursement status.
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Buyer obtains documents → clears goods.
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Reconcile proceeds, bank charges, interest, and keep copies for audit/export incentives.
