How to Verify a Letter of Credit Before You Ship
A letter of credit (LC) only protects an exporter if it is real, issued by a bank that will pay, and worded so you can comply. Fake credits, unworkable clauses and weak issuing banks often surface after shipment, when you have the least leverage. This guide sets out the checks.
A letter of credit (LC) only protects an exporter if it is real, issued by a bank that will pay, and worded so you can comply. Fake credits, unworkable clauses and weak issuing banks often surface after shipment, when you have the least leverage. This guide sets out the checks to run between receiving an LC and loading the goods.
Short answer: only rely on an LC advised to you through a bank, have your bank confirm it authenticated the SWIFT message, check the issuing bank independently, compare every field with your contract, remove clauses you cannot control, decide whether you need confirmation, and get amendments issued before you ship.
Step-by-step: verifying a letter of credit
Make sure the LC came through a bank
A documentary credit is sent bank to bank, normally as a SWIFT MT700, and reaches you through an advising bank. A copy emailed by the buyer, an agent or a broker tells you nothing about whether a bank actually issued it. Treat it as a draft until your bank has it.
Ask your bank to confirm authentication
Under UCP 600 article 9, an advising bank that advises a credit signifies that it has satisfied itself as to the apparent authenticity of the credit. Ask your relationship bank in writing whether it received and authenticated the credit, and whether it is acting as advising bank or second advising bank.
Check the issuing bank independently
Confirm the issuing bank exists, holds a banking license and is the institution named in the credit. Use your bank or public regulator registers, never contact details printed on the LC. Look-alike bank names and branches that do not exist are common features of fraud. Our guide on spotting fake deals and broker chains lists other warning signs.
Match the LC to your sales contract
Compare beneficiary name and address, amount and currency, goods description, Incoterms rule, ports, latest shipment date, expiry date and place, presentation period and partial shipment terms. Every difference is a future discrepancy or a dispute.
Look for clauses you cannot control
Watch for documents that only the buyer can produce, such as an acceptance certificate signed by the applicant, or payment conditional on the buyer's own customer paying. Our note on the pay-when-paid LC clause explains why these change the risk.
Assess issuing bank and country risk
A real LC from a weak bank, or from a country with transfer restrictions, may still pay late or not at all. If you cannot accept that risk, ask for confirmation. See when an exporter should request confirmation.
Request amendments before you ship
Send the buyer a single, complete list of changes. Amendments must come through the same bank channel and you must accept them. Do not load goods on the promise that an amendment is coming.
Keep a verification record
File the bank's authentication confirmation, your checks and the amendment history. If documents are later refused, this record helps your bank argue the presentation and helps any financier that discounts the credit.
Red flags and what to do
| What you see | Why it matters | Action |
|---|---|---|
| LC sent as a PDF by the buyer or an intermediary | No evidence a bank issued it | Wait for advice through your bank |
| Issuing bank not found in regulator registers | Possible fictitious or cloned bank | Stop and ask your bank to investigate |
| Applicant-signed documents required for payment | Buyer controls whether you get paid | Request deletion by amendment |
| Shipment and expiry dates almost the same | No time to prepare and present documents | Request a realistic presentation window |
| Goods description differs from your invoice | Likely discrepancy at presentation | Align the wording before shipment |
| Request for an upfront fee to release the LC | Genuine credits are not released for a fee to a third party | Treat as a warning sign and verify with your bank |
Checking the documents you will present
Verification is also about whether you can comply. List every document the credit requires, who issues it, and how long it takes. Under UCP 600 article 14(b), the issuing bank, a confirming bank and a nominated bank acting on its nomination each have a maximum of five banking days following the day of presentation to determine whether the documents comply. If the credit does not state a presentation period, article 14(c) requires a presentation that includes one or more original transport documents to be made no later than 21 calendar days after the date of shipment, and in any event not later than the expiry date. Read how banks examine documents under UCP 600 and the LC presentation period guide before you sign off.
What verification does not tell you
An authenticated credit proves that a bank issued it. It does not prove the buyer is solvent, that the issuing bank can transfer foreign currency on time, or that your documents will comply. It also does not cover disputes about the goods, because under UCP 600 banks deal with documents, not with goods or the underlying contract. Treat authentication as the first gate, then judge payment risk and your own ability to comply as separate questions.
When to bring in outside help
For larger or higher-risk credits, a structured review before shipment usually costs less than a refused presentation. Financely reviews LC wording, issuing bank and country exposure, and can approach banks for confirmation or discounting as an advisor and arranger. For bank-side controls, see our letter of credit fraud mitigation services. A confirming bank decides independently whether to add its undertaking.
Frequently Asked Questions
How can I tell if a letter of credit is genuine?
A genuine documentary credit normally reaches you through an advising bank that has authenticated the SWIFT message from the issuing bank. Ask your own bank to confirm it was received and authenticated. A PDF or scan sent by the buyer or a broker is not proof.
What does the advising bank check?
Under UCP 600, an advising bank that advises a credit signifies it has satisfied itself as to the apparent authenticity of the credit. It does not take on payment risk unless it also confirms the credit. Ask your relationship bank in writing whether it received and authenticated the credit.
What clauses in a letter of credit should worry an exporter?
Clauses that make payment depend on something you cannot control, such as a document signed by the buyer, an inspection certificate issued by the buyer, or payment only after the buyer is paid by its own customer. Ask the buyer to have these deleted by amendment before you ship.
Should I ask for the letter of credit to be confirmed?
Consider it when the issuing bank or its country is a credit risk you cannot judge or accept. A confirming bank adds its own payment undertaking. It will only do so if it has a limit on the issuing bank and country.
What if the LC terms do not match the contract?
Ask the buyer to have its bank issue an amendment before you ship. Send a single, complete list of changes, because each amendment must come through the bank channel and you must accept it. Once goods are on board, you lose leverage, and documents that do not comply can lead to refusal or delayed payment.
Received an LC and not sure it will pay?
See how Financely structures this on Letter of Credit Confirmation, or send the file for review.
Financely is an advisor and arranger. It does not lend, issue letters of credit or take title to goods, and no financing outcome is promised. Any facility depends on the credit approval of the bank or financier. This guide is general information, not legal, tax or regulatory advice.