Many exporters make mistakes when preparing letters of credit. Whether they are manufacturers or merchants, new to exporting or experienced firms, large in size or small, located in developed or developing countries, they tend to make the same errors. Payment is subject to compliance. Surveys suggest that letters of credit are often rejected because of errors in preparation. Payment is refused or delayed as a result.
Faulty documentation is a major risk in accepting letters of credit.
Another major risk is fraudulent documentation. Letters of credit are safe against commercial risks if irrevocable, and against political risks if confirmed. Firms should aim for error-free documentation. They should make it company policy and develop strategies to eliminate all errors before presenting letters of credit for payment. Below are eight steps to adopt that can help firms move towards this goal.