A Letter of Credit Does Not Inspect the Goods

A documentary credit can reduce payment risk, but it does not turn a bank into a product inspector. A quality gate affects payment only when the transaction documents are designed to carry objective inspection evidence.

Separate goods from documents

ICC UCP 600 treats credits as document-based transactions. Article 34 disclaims bank responsibility for the quality, condition, packing, delivery or existence of goods represented by documents. A complying presentation is therefore not the same as physical buyer acceptance.

Avoid non-documentary conditions

A contract may say that goods must pass inspection, but the credit may list only an invoice, packing list and bill of lading. UCP 600 Article 14(h) addresses conditions for which no compliance document is stipulated. Vague wording can fail to create a usable documentary control.

Align three layers before issuance

Connect the sales contract and PO, the inspection or factory-acceptance process, and the credit's required documents and data. Name the independent issuer where appropriate and define objective fields such as model, quantity, sampling plan, tests, result and shipment reference.

Design for timing and discrepancy handling

The inspection must occur early enough for the required document to be issued and presented. Define how failures, reinspection, amendments and discrepancies will be handled. The issuing bank and qualified trade-finance adviser should review transaction-specific wording, rules and jurisdiction.

Primary sources

• ICC — UCP 600 rules

Use these controls as a procurement framework, not as product-specific engineering, legal, regulatory, banking or warranty advice. Verify the actual product, transaction, route and jurisdiction with qualified professionals.

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