A letter of credit feels safer than a raw wire because a bank is in the middle. That is only half true. Under ordinary documentary-credit practice the bank pays when the documents on the credit match — invoice, packing list, bill of lading, certificate names — not when the goods in the carton match the sample you approved on WeChat.
This piece is for the importer who has been told “we can do L/C” and needs to know what has to be identical across the PI, the L/C, and the set the factory will present.
1. What the bank is looking at
In a typical sight L/C the issuing bank (or the nominated bank) examines a pack of papers against the credit text. If the pack is clean, money can move even if you have not opened the container. If one field is off — a slightly different product description, a misspelled consignee, a late shipment date — the bank can refuse. The factory then asks you to waive the discrepancy or the deal stalls.
So an L/C is protection against “they shipped nothing and kept the deposit” only if the documents are tight. It is not inspection. It is not a substitute for a quality clause on the PI.
2. Where buyers actually get hurt
The PI and the L/C describe two different products. Marketplace title on the credit, factory model on the invoice: that is a discrepancy waiting to happen.
The seller on the credit is not the company that can issue the documents. A trading company books the L/C beneficiary as itself, then the bill of lading shows another name. Banks read names, not explanations.
Soft terms that cannot appear on a document. “Quality as sample,” “best effort ship week 12,” “including spare parts as discussed” have to be turned into countable lines — or they will not be on the credit, and they will not be enforceable through the bank.
You waive too fast. Once you accept discrepant documents to “keep the vessel,” you have paid for whatever those papers say. Inspect before you waive when the discrepancy is about description, quantity, or date.
3. Lines that must match before anyone applies for the credit
- beneficiary’s exact legal name and address
- product description short enough to print on every document the same way
- quantity, unit, Incoterm and named place (FOB Shanghai is not CIF Los Angeles)
- latest shipment date and whether partial shipments / transshipment are allowed
- which certificates are required — and who issues them (factory, CIQ-style body, third-party lab)
- how many originals of the bill of lading, and to whose order
Draft the L/C from the PI, not from a bank template filled in by the salesperson. If the factory cannot produce a certificate the credit demands, do not put that certificate on the credit to look thorough.
4. What an L/C does not replace
Inspection before the balance, mold ownership, and “who is the actual factory” still belong on the PI. An L/C can sit on top of a clean purchase contract. It cannot invent terms that were never written. For small first orders, the bank fees and the discrepancy risk often cost more than the safety you think you bought — T/T against inspection can be cleaner. For large, repeat, or first-time counterparties where you will not prepay the full amount, the L/C is a tool if the paperwork is aligned.
The bottom line
A letter of credit pays a matching document set. If the PI, the credit, and the papers the factory can actually issue are not the same story, you will either waive discrepancies or sit on a refused presentation. Align the names, the description, the dates, and the certificates before the application goes to the bank.
If you need the PI wording and the document names aligned in English and Chinese before the L/C is opened, I can prepare the clause and issue a stamped set under our bilingual translation company seal when you need one. See what this covers.
Documentary credits are commonly handled under ICC rules such as UCP 600; banks apply the credit text in front of them. Confirm terms with your bank and advising bank. This article is general sourcing guidance, not banking or legal advice.