Letter of Credit for Thai Exporters: The Seller's Guide to Getting Paid

For many Thai exporters the first letter of credit arrives the same way: a new overseas buyer, a large order, and a sentence in the contract saying payment will be by L/C. The seller is relieved, because a bank is now involved and the fear of shipping to a stranger has gone away. Then the draft credit arrives, running to several pages of dense conditions, and the relief turns into a different worry: what exactly must be done to get paid?

This article is the seller-side companion to two others on this site. Our comparison of letters of credit and telegraphic transfers explains when an L/C is the right instrument in the first place, and our guide to shipping document mistakes under an L/C catalogues the errors that most often get a presentation refused. Here the focus is the working mechanics a beneficiary needs in one place: who the banks are and what each one actually promises, how a document presentation is examined, what a discrepancy is and what follows from one, why the bill of lading has to match the credit so exactly, how a confirmed credit differs structurally from an unconfirmed one, and where the costs sit. It deliberately gives no fees or percentages, because those are set by each bank and change; confirm every figure with your own bank.

The central idea to hold onto is simple. An L/C does not ensure that you will be paid for shipping goods. It promises that a bank will pay if you present the right documents, in the right form, on time. Everything below follows from that distinction.

The parties: who promises what

Four roles recur in almost every L/C, and confusing them is the root of many avoidable errors.

• The applicant is the buyer. It instructs its own bank to open the credit and is the party the credit is ultimately issued for.
• The issuing bank is the applicant's bank. It is the one that makes the actual undertaking to pay a compliant presentation. Its obligation is its own, independent of the sale contract, and independent of whether the buyer is happy with the goods.
• The beneficiary is you, the exporter. You are entitled to draw on the credit, but only by satisfying its conditions.
• The advising bank is usually a bank in your country, chosen by the issuing bank. It checks that the credit is authentic and passes it to you. By default, advising does not mean the advising bank is promising to pay; it is a forwarding and authentication role.

A fifth role appears when the credit is confirmed. A confirming bank adds its own separate undertaking to pay a compliant presentation, so the beneficiary then has two banks standing behind the documents. Sometimes the advising bank also confirms; sometimes a different bank does. Which bank is which is stated on the face of the credit, and you should be able to name each bank in your own transaction before production starts.

There may also be a nominated bank, meaning the bank the credit authorises to pay, accept or negotiate. Where the credit says it is available with a particular bank, that is where you present, and the instruction is worth reading carefully because presenting to the wrong place is itself a way to lose time.

Two practical points follow. First, the advising bank is your doorway into the process, so open a conversation with it early rather than treating it as a post box. Second, an L/C is often governed by a widely used set of international banking rules for documentary credits; the credit usually says so on its face. Which version applies, and how it treats a specific point, is something to confirm with your bank rather than assume.

How an L/C flows, from contract to money

The sequence matters because several of the most expensive mistakes are made early, long before a document is typed.

It starts with the sale contract, which should say that payment is by L/C and should describe the terms the credit must reflect: the goods and their description, the price and the trade term, latest shipment, whether partial shipments and transhipment are allowed, and who pays which bank charges. If the contract is vague, the credit becomes the first place those details are fixed, and it is written by the buyer's side.

The buyer then applies to its bank. The issuing bank issues the credit and sends it, usually through a bank network, to the advising bank in your country. The advising bank authenticates it and passes it to you. This is the draft the seller reads, and it is the moment of most leverage, because nothing has been produced or shipped yet.

If the draft is workable, you proceed. If it is not, you ask the buyer for an amendment. An amendment is an agreed change to the credit, and it needs the consent of the relevant parties, so it takes time and sometimes costs money. The earlier you ask, the more likely the buyer is to cooperate, since the buyer still wants the goods.

You then produce and ship within the credit's dates, and assemble the document set the credit lists. The set is presented, within the presentation period, to the bank the credit nominates. That bank, or the issuing bank, examines the documents against the credit. If they comply, the credit is honoured: depending on how the credit is structured, that means immediate payment, or acceptance of an obligation to pay later on a stated date. If they do not comply, the discrepancy process begins, described below.

Two structures are common. A sight credit pays when a compliant presentation is made and examined. A usance, or deferred, credit creates a payment obligation that matures after a stated period. The examination mechanics are the same; only the timing of the money differs. Know which one you hold, because it decides your cash-flow expectations.

Reading the draft L/C like a seller, not like a banker

A banker reads a credit to see what it says. A seller needs to read it to see whether the seller can actually do it. Those are different reading tasks, and the second one is the one that protects you.

Start with the names and addresses of the parties. A misspelt company name, a wrong address or a missing suite number looks trivial, but if the credit and your documents disagree, the bank may treat the difference as a discrepancy. Ask for the credit to be corrected now, not for your documents to be bent later.

Then test the goods description against how you actually describe the product on your commercial invoice. Credits often describe goods in a way that mirrors the buyer's purchase order, not your product catalogue. Your invoice description is normally expected to correspond to the credit's description, so the safest practice is to copy it exactly and keep any extra product detail out of the invoice or in a place the credit permits.

Next, the dates. The latest shipment date is a date by which goods must be shipped. The expiry date is the last day the credit is valid. The presentation period is the number of days after shipment within which documents must be presented. These three interact: a late shipment, even by one day, can break the credit regardless of how the presentation period reads. Compare each against what production, inland haulage, booking and the carrier's sailing schedule can really deliver, not against what felt comfortable when the contract was signed.

Check the shipping terms the credit describes: ports of loading and discharge, whether partial shipments are allowed, whether transhipment is allowed. If the credit forbids transhipment and the only available routing involves it, you have a problem to fix before booking, not at the terminal. Your freight forwarder can tell you what routing is realistic.

Then read the document list one line at a time. For each document, ask who issues it, what the credit says it must contain, how many originals and copies are needed, and how long it will take to obtain. Third-party documents, such as inspection certificates or a certificate of origin, are the ones most likely to be late. Finally, see which bank charges fall to the beneficiary and whether confirmation is requested or required.

If any item cannot be met, the answer is an amendment request, made at once. Never decide that the clause is probably fine.

Presenting documents and how the bank examines them

When the goods have shipped, the exporter assembles the presentation. Typical items in a document set include a commercial invoice, a transport document such as a bill of lading, a packing list, an insurance document where the trade term or credit calls for one, and any certificates the credit specifies. The credit itself decides the list; do not assume that what your last buyer asked for applies to this one.

The examining bank compares each document against the credit and, to a degree, against the other documents. It does not open the container. It does not weigh the goods. It does not ask whether the buyer is content. It asks whether the documents, on their face, comply with the terms of the credit and are consistent with each other.

That last point is often underestimated. A set can fail not because any one document disagrees with the credit, but because two documents disagree with one another: the quantity on the invoice differs from the quantity on the packing list, or the vessel named on the bill of lading differs from the vessel named on an insurance document. The bank sees an inconsistency and may refuse.

Presentation is a time-bound act. The credit gives a number of days after shipment, within the credit's expiry, for presentation. The practical rule is to plan backwards from the last day. Work out how long each third-party document takes, how long your own team needs to assemble and check the set, and how long it takes to reach the correct bank, including time for couriers and bank cut-off times. Aim to finish well before the deadline so that, if the bank finds something wrong, there is still time to correct it inside the period.

It is good practice to review the whole set against the credit before sending it, ideally by a second person who did not prepare it, using the credit's own wording as the checklist. Many exporters also ask their bank to pre-check the set informally before formal presentation. Whether and how your bank offers this is something to ask; not every bank does it the same way.

Finally, keep the originals under control. The number of originals matters, because the credit may call for a full set of original bills of lading, and loss or misdirection of one original can be a serious problem.

Discrepancies: what they are and what happens next

A discrepancy is a point on which a presentation does not comply with the credit, or where documents are inconsistent with each other. Typical examples are an invoice description that departs from the credit, a missing document, a document issued or signed in a way the credit does not allow, a late shipment, a late presentation, or a quantity or amount outside what the credit permits. Some discrepancies look small to a human reader, such as a transposed digit or a misspelt consignee, but a bank examining on the face of the documents is not asked to guess your intention.

When the bank finds a discrepancy, it generally has options. It may refuse the documents and say why. It may hold them while it contacts the applicant to ask whether the applicant will waive the discrepancy. It may return them. Under common rules, a bank that refuses is expected to give notice of its reasons within a limited time, in a prescribed manner, and a notice that does not follow the rules can affect the bank's position. The specifics are technical, and the right way to deal with them is to rely on your bank's documentary credits department rather than your own reading of the rules.

The uncomfortable structural fact is what a waiver means. If the applicant waives, the bank can proceed. But the applicant now has leverage. A buyer facing a price drop, a changed market, or second thoughts about the order can use the discrepancy as a reason to ask for a discount, a delay, or a changed term. The bank's independent promise has become, in practice, a negotiation with the buyer. That is why the seller's goal is to present clean documents, not to present documents and hope the discrepancy is waived.

If you do find a discrepancy before presenting, correct it. If the correction needs a document from a third party, start immediately. If the discrepancy cannot be corrected inside the time allowed, ask your bank about options: an amendment to the credit, if time and the buyer's cooperation exist, or a presentation that is openly marked as discrepant with the buyer's waiver sought in parallel. These carry different risks, so ask for advice before choosing.

In the worst case, goods are already at destination, the original bills of lading are stuck in a refused set, and the buyer has not yet agreed to waive. This is why documents and the physical flow of goods have to be planned together, which is the subject of the next section.

Why bill of lading dates and descriptions must match exactly

Of all the documents in a set, the bill of lading draws the most scrutiny, for a reason that sits at the intersection of finance and freight. A bill of lading is the carrier's receipt for the cargo and the contract of carriage, and when it is an original negotiable bill, it is also a document of title. Under an L/C, it is the document through which the bank takes comfort that the goods have actually been put in the carrier's hands within the dates the credit allows. See our guide on what a bill of lading is for the document itself; here the focus is what the credit demands of it.

The shipped-on-board date is the first reason. The credit has a latest shipment date, and the bank tests it against the date the bill of lading shows as the date of loading on board. If the B/L shows the cargo loaded one day after the latest shipment date, the shipment is late on the face of the document, and the physical truth that the container was gated in on time does not rescue it. This is why an on-board notation matters, and why a B/L date must be checked against the credit before the carrier releases the bill, not after.

The goods description is the second. A bill of lading often carries a description of the cargo, and the credit may require that it correspond to, or at least not conflict with, the credit's description and the invoice. Where the B/L uses a general description, that is often acceptable if consistent, but where the credit prescribes wording, the B/L must reflect it. A forwarder who types the description from the shipping instruction must therefore be given the credit's wording, not the exporter's habitual product name.

The consignee and notify party are the third. The credit states to whom the bill must be made out, for example to order of a named bank or to order of the applicant. If the bill names a different consignee, the bank cannot accept it, and the entire control the L/C gives over the goods is undermined. Notify party details, if stated, must also match.

The ports and routing are the fourth. A bill that shows a different port of loading or discharge than the credit, or that shows transhipment where the credit prohibits it, will draw a discrepancy. The vessel and voyage details must also be consistent with other documents.

The freight terms are the fifth. If the trade term makes the seller responsible for the main carriage, the credit often requires the bill to indicate freight prepaid, and under other terms it indicates freight collect. A mismatch between what the B/L says about freight and what the credit requires is a classic cause of refusal. See our articles on the Incoterms rules for how freight responsibility is allocated.

Finally, the bill must be clean, signed by the right party, and presented in the number of originals required. A bill that records damage to the goods or packing may be treated as unclean and not accepted.

The common thread is the one stated at the start. The bank reads paper. It does not know that the vessel sailed on time, that the goods are the right goods or that the wording difference was only a harmless shorthand. So the working method is: give your forwarder the credit's exact wording before the shipping instruction is sent, ask to see the draft bill of lading before it is released, compare it line by line against the credit, and correct it at the carrier while it is still cheap to do so. Our article on L/C shipping document mistakes lists the specific errors in detail.

Confirmed and unconfirmed credits, structurally

In an unconfirmed credit, the only bank that has promised to pay is the issuing bank. The advising bank, whatever its reputation, is only passing the credit on. If the issuing bank does not perform, for any reason, the beneficiary's claim runs against the issuing bank, in the issuing bank's jurisdiction, under the credit.

In a confirmed credit, a second bank has added its confirmation, which is its own independent undertaking to pay or accept a compliant presentation. The beneficiary now has two banks with obligations on the same documents, and the confirming bank is usually one the beneficiary can deal with directly, in its own country or region. The confirming bank takes on the risk that it will pay a compliant presentation and then have to seek reimbursement from the issuing bank. That is the structural reason confirmation is a priced service: the confirming bank is taking on exposure and charging for it, and its appetite depends on its view of the issuing bank and the issuing bank's country.

Two points are easy to miss. First, confirmation does not fix a non-compliant presentation. The confirming bank, like the issuing bank, pays against compliant documents. A discrepant set is a problem under both an unconfirmed and a confirmed credit, though a confirming bank that is in your jurisdiction can be easier to talk to. Second, confirmation is something the credit says. The issuing bank has to authorise it, and the confirming bank has to agree. An advising bank saying that it will probably be fine is not confirmation.

When is confirmation worth considering? It becomes relevant where the beneficiary is uneasy about the issuing bank's standing, about the political or economic conditions of the issuing bank's country, or about the practical ability of funds to move out of that country. It is less relevant where the issuing bank is one the beneficiary has good reason to trust. The decision is commercial: it balances the cost of confirmation, which someone has to bear, against the exposure it removes. The contract should say who requests and who pays for confirmation, because if the sale contract is silent, the buyer's credit may arrive unconfirmed with the beneficiary left to arrange confirmation separately.

Some sellers also ask whether a bank can finance them against the credit before payment is due. Banks do offer financing against documents under credits, but the terms are bank-specific and generally depend on the quality of the presentation and the standing of the banks, so ask yours what it offers rather than assuming.

The cost items in an L/C transaction, qualitatively

This article gives no fee levels, because each bank sets its own and they change. What matters for a seller is knowing where the cost items sit, so that none appears for the first time on a statement.

The charges of the banks in the chain fall into broad types. There are charges for issuing the credit, which is the buyer's side of the arrangement but which the credit may allocate differently. There are charges for advising the credit, which is the advising bank's work in authenticating and passing it on. Where the credit is confirmed, there is a confirmation charge, which is the price of the second bank's undertaking and which depends on the banks and the risk the confirming bank perceives. There are charges for examining documents and for negotiating, paying or accepting them. There are charges for amendments, which can arise each time the credit is changed. There may be charges for handling discrepant presentations. And there may be charges for sending documents, communications and for any reimbursement arrangements.

The credit usually says who bears charges outside the issuing bank. A common pattern is that charges of the issuing bank are for the applicant and the other banks' charges are for the beneficiary, but this varies and must be read in each credit. If the credit says beneficiary bears all charges, the exporter should expect to see each of the above.

There is also a category of indirect cost that rarely appears on a bank statement. The first is time: a refused or discrepant presentation delays payment, and delayed payment ties up working capital. The second is the cost of producing documents to the credit's strict format, including third-party certificates and extra courier time. The third is the cost of an amendment in terms of the buyer's goodwill. The fourth is storage or demurrage-type exposure at destination if documents are held up while goods have arrived, which is why shipping and document timing must be planned together. The fifth is the opportunity cost of the lower flexibility an L/C imposes: dates and wording that cannot be adjusted on the fly.

The commercial question, then, is not whether an L/C costs something but whether the security it gives a seller is worth that cost in the specific deal. For a new buyer in an unfamiliar market with a large order, the answer is often yes. For a repeat buyer with a long clean history, other payment terms may be more efficient, and our companion articles on L/C versus telegraphic transfer and on export payment terms set out how to weigh them. Always ask your bank for its current fee schedule in writing, ideally before the sale contract is signed, so the cost can be priced into the quotation.

Where the freight forwarder fits, and a checklist for your next L/C

Payment and freight are two views of the same deal. The L/C fixes dates, ports, routing, document types and wording, and the forwarder's work, which is booking, producing the bill of lading, consolidating documents and managing the cargo, has to fit inside those limits. A forwarder such as TGF can coordinate booking, documents and customs handoff, but the credit's terms are the exporter's responsibility to understand and the exporter's bank is the right party to interpret them.

Bring the forwarder in before the credit is finalised, not after. A forwarder can tell you whether the latest shipment date is workable against realistic sailings, whether a no-transhipment clause fits the available routing, how long the carrier takes to issue a bill of lading, and whether the destination port in the credit is served. Those are cheap questions to ask early and very expensive to discover late.

A short working routine for each L/C:

• On receipt, read the credit against the sale contract and against what production and logistics can really do; request amendments at once for anything unworkable.
• Give the forwarder the credit's exact wording for the goods description, consignee, notify party, ports and freight indication before the shipping instruction is sent.
• Ask for the draft bill of lading and compare it line by line before it is released.
• Prepare the invoice, packing list and other documents from the credit, not from a template, and cross-check quantities, amounts, descriptions and references between them.
• Have a second person check the full set against the credit, and use your bank's pre-check if it offers one.
• Present early inside the period, to the correct bank, and track the presentation.
• If a discrepancy is found, act the same day: correct, seek an amendment, or consult your bank on a discrepant presentation.

Learn from each credit. Keep a note of which clauses caused trouble with which buyer or bank, because credits from the same buyer tend to repeat their wording. And remember the limits of any article, this one included: rules and practice change, banks differ, and destination countries have their own requirements. Confirm current practice with your bank and your forwarder before you rely on any detail here.