Using Letter of Credit (LC) When Buying From Bangladesh: Bank Rules and Tips

As the buyer, you are the applicant in a letter of credit (LC) transaction: the party on whose request your bank issues the credit. You choose the credit type, ask your bank for the facility, and approve or refuse a waiver when documents do not comply. The seller ships against your bank undertaking, set before shipment in the clause you agree.

UCP 600, the Uniform Customs and Practice for Documentary Credits, 2007 Revision, is the rule set most documentary credits are issued under. The International Chamber of Commerce approved the revision in October 2006, cut the articles from 49 to 39, replaced the old "reasonable time" for document examination with a maximum period of five banking days, and implemented 1 July 2007.¹ A credit is irrevocable even if no indication to that effect appears in it, and it is a separate transaction from the sale contract on which it may be based.² Banks deal with documents and not with goods, services or performance to which the documents may relate.²

For the short definition, see the letter of credit (LC) guide. This guide covers the buyer operating an LC on an order from Bangladesh. It is not a TT guide: a TT moves money on your instruction, while an LC adds a bank undertaking tied to documents, as covered in the TT payment guide.

Why this matters for buyers and sellers

For the buyer, an LC moves your last check forward in time. Under a TT balance, your last check is usually a document you inspect before you instruct payment. Under an LC, your last check is the credit itself: once your bank issues it, the seller can earn payment by presenting documents that comply with it, without inspection. The risk is that a loosely written credit pays on papers that do not match your order.

For the seller in Bangladesh, an LC changes the financing and the bank file. The seller produces and ships against a bank undertaking rather than a buyer promise, and the seller bank handles the export file under Bangladesh Bank rules. That is why sellers ask for LCs on first orders and larger orders, and why a seller will resist an LC naming a document it cannot obtain or a deadline it cannot meet.

Step-by-step: how it works

Your decisions sit at steps 1, 2 and 6.

1. Agree the LC clause in the contract, before any bank form. Write the credit type, currency and amount, latest shipment date, expiry date and place for presentation, required documents, ports, goods description, and confirmation requirement. State one delivery term with a named place, using one of the Incoterms 2020 rules, which allocate cost, risk and obligations between seller and buyer.³ State whether an inspection certificate is required, who issues it, and what it must say, and who bears each bank charge.

2. Apply through your bank and confirm the facility first. Your bank is the issuing bank. It checks your credit line or security and the clause you agreed. Ask your bank, in writing, for its full charge schedule for this credit and the confirmation route if you want confirmation. If your bank cannot issue on the agreed terms, renegotiate now, while the seller can still accept a change without an amendment.

3. Check the issued credit through the seller, line by line. Your bank sends the credit to a bank in Bangladesh, which advises it to the seller. The advising bank advises without an undertaking to honour or negotiate unless it also confirms.² Ask the seller to confirm in writing that every line is workable.

4. Let the seller ship, and track the document clock, not only the goods. On shipment, the seller builds the document set the credit names and presents it through its bank. On the Bangladesh side, exports are declared on the EXP Form through the seller bank, as an authorized dealer (AD).⁴ Transport documents for land or sea exports from Bangladesh must generally be drawn to the order of an AD and handed to its authorized representative.⁴ Ask the seller for the shipment and expected presentation dates as soon as goods ship, and compare them with the credit.

5. Count the examination window from presentation. A presentation that includes an original transport document must be made not later than 21 calendar days after the date of shipment, and in any event not later than the expiry date of the credit.² Each examining bank has a maximum of five banking days following the day of presentation to determine if the presentation complies.²

6. Decide on discrepancies promptly, with the file in front of you. If the issuing bank determines that a presentation does not comply, it may in its sole judgment approach you, the applicant, for a waiver, but that approach does not extend the examination period.² Waiving a spelling error is different from waiving a missing inspection certificate or a late shipment date. Record your decision in writing to your bank.

7. Pay or accept the usance obligation, then take delivery on the documents. If the presentation complies, the issuing bank must honour it: pay at sight for a sight credit, or incur a deferred payment undertaking and pay at maturity for a deferred payment credit.² A confirming bank, where one exists, carries its own undertaking in addition to the issuing bank.² On honour, the documents are released to you, and the transport document lets you take delivery.

Costs, timelines and documents

What are the typical costs and timelines?

There is no universal LC fee or timeline that a guide can state as fact. Issuance, advising, confirmation, negotiation, amendment and discrepancy charges vary by bank, LC type, amount, and the banks in the chain. Confirmation adds a second bank undertaking and a second charge, priced by the banks, not by a published table. Ask each bank for its charges in writing before issuance, and write who bears each charge into the contract.

Timelines are set by the credit and the rules. The fixed points are the latest shipment date, the 21-calendar-day presentation limit, the expiry date, and the five-banking-day examination maximum per examining bank.² A sight credit pays on a complying presentation; a usance credit pays at maturity. Build your cash plan around the maturity date in the credit, not the shipment date.

Example figures: a buyer orders bed linen sets for USD 40,000 on a sight LC, with shipment on 8 November, presentation on 20 November, a latest shipment date of 10 November and expiry on 1 December. Example figures: the presentation sits inside the 21-day limit and before expiry. The dates show structure only, not a typical fee or processing time.

Which documents are needed?

The credit decides the document set. No fixed list applies to every LC, and a document not named in the credit will be disregarded by the bank even if you wanted it. The usual set, where named, is the commercial invoice, the transport document (bill of lading for sea, air waybill for air), the packing list, and, where required, an insurance document and a certificate of origin. Add an inspection certificate only where the credit names the issuer and the wording.

Document discipline is where most presentations fail. Data in a document must not conflict with data in another stipulated document or the credit.² The invoice description, quantity, amount and delivery term must match the credit, and any insurance document must match the coverage, amount and currency the credit states. Invoice content is a frequent discrepancy source: mirror the credit wording rather than paraphrase it.⁵ Under-coverage or a wording mismatch on an insurance document is a common and costly error.⁵

Bangladesh-specific rules and tips

Start with the seller bank file. All exports from Bangladesh, unless exempted, must be declared on the EXP Form, and exporters undertake on that form to repatriate full export proceeds within the period specified by Bangladesh Bank.⁴ The prescribed period for repatriating export proceeds is four months, and if the full proceeds of a shipment are not received within that period without special or general authorization from Bangladesh Bank, exporters are subject to action under the Foreign Exchange Regulation Act, 1947.⁴ For a sight LC, that period rarely binds the buyer. For a usance LC, a maturity date beyond the prescribed period creates a file problem for the seller and its bank.

Export payments may be received through an AD in freely convertible foreign currency, including Chinese Yuan, or in taka from a non-resident taka account.⁴ Before executing an export transaction, the AD must satisfy itself about realization arrangements, title documents, and, where necessary, buyer bona fides.⁴ Keep company details, order value and shipment plan consistent across the contract, application and invoice.

Ask about transport documents before you agree the clause. Transport documents for land or sea exports must generally be drawn to the order of an AD and handed to its authorized representative, and air waybills should be drawn to the order of a bank in the country of import nominated by the AD.⁴ A transport document may be drawn to the order of the importer only in defined cases, including full advance payment through an AD where the LC or contract requires it, with a certificate from the designated AD to the carrier.⁴ A separate facility allows ADs, for shipment value up to USD 100,000 or equivalent and subject to conditions, to allow transport documents in the name of foreign importers.⁴ Do not assume the bill of lading will arrive in your name: ask how it will be drawn and endorsed, and write the answer into the clause.

Mistakes and red flags

What are the most common mistakes?

Agreeing the LC clause after the price, not with it. Price, delivery term, document list, shipment date and credit type are one negotiation. A price agreed without a confirmation decision or a charge allocation will be reopened by the bank form.

Naming a document the seller cannot obtain. A certificate from an issuer that does not issue it, or a port the carrier does not serve, produces a presentation that cannot comply.

Setting shipment and expiry dates from the production plan alone. Packing, transport booking, document build and presentation all sit between production and expiry. Dates with no buffer for a carrier delay or for presentation and examination turn a normal delay into a discrepancy.

Treating confirmation as a label. An advising bank without confirmation gives no payment undertaking.² If you want a second undertaking, ask for confirmation expressly, with its route and charge confirmed before issuance.

Waiving discrepancies without reading them. A waiver accepts documents you have not approved as complying. Separate paper errors from goods and shipment facts before you answer.

Assuming the bank checks the goods. Banks deal with documents, not goods.² Quality and packing are protected by inspection, by the contract, and by the documents you name, not by the LC alone.

Changing bank details mid-transaction without a verified channel. A request to change the beneficiary account or the presentation route, arriving by a new email address or an unfamiliar thread, is a stop signal. Verify it through a channel you already trust and through your bank before you act.

Checklist

Before you ask your bank to issue, answer every line in writing.

• LC type agreed: sight or usance, with the maturity date in the contract.

• Currency, amount, and any tolerance for quantity or amount stated in the credit.

• Latest shipment date, expiry date, place for presentation, and presentation period set with buffer.

• Delivery term and named place agreed, using one Incoterms 2020 rule.³

• Document list complete: invoice, transport document, packing list, and insurance, origin or inspection documents only where named.

• Beneficiary legal name and address checked against the seller bank account.

• Confirmation decision made expressly, with route and charge confirmed where applicable.

• Bank charges allocated in the contract.

• Seller written confirmation that every named document, port, date and description is workable.

• Bangladesh file checked: EXP Form position, transport document endorsement route, and usance period within the repatriation period.⁴

• Waiver process agreed internally: who reads a discrepancy list, who decides, and how fast the answer reaches your bank.

How Exportain helps

Post a free RFQ on Exportain at https://exportain.com/rfqs with the LC clause you intend to use: credit type, latest shipment date, document list, delivery term and named place, and inspection requirement. Suppliers quote against the same clause, so the LC conversation starts from agreed terms. Keep every change in the recorded quotation trail.

Exportain platform payments are separate from your LC. The payment terms page covers membership payments and platform charges, not the bank undertaking between you and the seller.⁶ Your LC runs between your bank, the seller bank and the seller.

For the trust side, read buyer protection for what Exportain checks and records: supplier verification submissions reviewed by the Exportain team, a recorded quotation history, private document storage, and a route to report problems.⁷ A badge is a record of checks reviewed, not a capacity, quality or delivery guarantee, and it cannot be purchased.⁷

FAQs

What should I know first about letter of credit?

You are the applicant, the credit is irrevocable once issued, separate from the sales contract, and banks deal with documents, not goods.² Agree the credit type, dates, document list and charge allocation in the contract before issuance.²

What are the typical costs and timelines?

There are no typical LC costs or timelines a guide can state as fact, because charges vary by bank, LC type and amount. The fixed points are the latest shipment date, the 21-calendar-day presentation limit, the expiry date, and the five-banking-day examination maximum per examining bank.²

Which documents are needed?

Only the documents the credit names, and each must match the credit: invoice, transport document, packing list, and, where required, insurance, origin and inspection documents with a named issuer and wording. Data in a document must not conflict with data in another stipulated document or the credit.² On the Bangladesh side, the export is declared on the EXP Form through the seller AD bank.⁴

What are the most common mistakes?

The most common mistakes are agreeing the LC clause after the price, naming a document the seller cannot obtain, setting dates without buffer, treating an advising bank as a confirming bank, waiving discrepancies without reading them, assuming the bank checks the goods, and acting on an unverified change to bank details.

Next steps on Exportain

Post a free RFQ on Exportain at https://exportain.com/rfqs with your LC clause, latest shipment date and document list, so suppliers quote on the same terms. Before you confirm, read the letter of credit (LC) guide for the short definition, and buyer protection for what Exportain checks and records on supplier verification.⁷