Letters of Credit

Once an application is approved, the Credit Officer prepares a credit instrument with the applicant, the instrument limit and the expiry date. The Credit Approver approves it after the evidence is verified and the issuing bank has acknowledged it. The instrument moves from Draft to Submitted to Approved, and to Completed when the credit is finished.

The letter of credit itself is recorded only from the issuing bank’s actual issuance receipt, with the bank reference, the limit, the expiry date and the applicant. It is Requested, then Issued, Amended if terms change, and Expired or Closed at the end. Each documentary presentation against it is a drawing: the document set, the amount, the presentation date, the bank’s decision and the settlement date.

• Bank receipt before issuance. The letter of credit appears only when the bank has actually issued it.
• Drawings within the limit. Total drawings never exceed the credit’s limit.
• Expiry watched. Credits nearing expiry appear on one list so amendments or closures are handled in time.

Agree the issuing and advising banks you work with and how their issuance receipts and decisions reach you. Decide who records presentations and how document discrepancies are handled. Agree the notice period for expiring credits and who approves amendments.

The importer’s instrument is approved with a $750,000 limit expiring in 150 days. The issuing bank sends its issuance receipt, and the Trade Operations Officer records the letter of credit with the bank reference and status Issued.

The supplier ships and presents the bill of lading, commercial invoice and packing list for $480,000. The officer records the drawing with that document set. The bank finds a discrepancy in the invoice date, and the importer waives it; the bank’s decision is recorded as accepted with waiver, and the settlement date follows. A second presentation of $270,000 uses the rest of the limit, and the credit is Closed once it settles. Any further presentation would exceed the limit and is refused.

• Letters of Credit in Force — Issued and amended credits with bank reference, applicant, limit and expiry.
• Credit Drawings — Presentations with document set, amount, bank decision and settlement date.
• Expiring Letters of Credit — Credits expiring within the next 30 days.

• Letter of credit issuance and drawings: From instrument approval to settled drawings.
• Financing application to approval: The approval the instrument depends on.

Plan the bank connections before issuing credits.