--- title: "Under the conventional agency import business model, who should bear the responsibility for issuing the letter of credit: the principal or the agent?" description: "Many enterprises engaged in agency import business often fall into rights and obligations disputes due to ambiguous definition of the LC issuing party，and even trigger risks such as port detention and credit default. It is necessary to clarify the issuing responsibility of the principal or the agent in combination with the agency agreement and regulatory requirements，and ensure the compliance of the business，effectively isolate funding and credit risks through pre-review，node control and emergen..." url: "https://www.sh-zhongshen.com/en/qa/ency-import-lc-issuing-party-principal-or-agent.html" language: "en" type: "Q&A" category: "Import Agency Q&A" datePublished: "2026-10-16" dateModified: "2026-10-16" brand: "Zhongshen Trading China" answerCount: 7 --- # Under the conventional agency import business model, who should bear the responsibility for issuing the letter of credit: the principal or the agent? ## Question I am a small and medium-sized trading company based in Shanghai specializing in precision machinery imports. Last month, we finalized the agency import cooperation with Zhongshen to purchase a batch of CNC equipment worth 2 million euros from Germany. Recently, our factory is pressing for delivery urgently, and the German supplier has finalized the production schedule, and shipment can only be arranged once the letter of credit is issued. When I cooperated with another agency company before, we failed to clarify the LC issuing party in advance, and the agent delayed issuing the LC citing insufficient credit limit, which resulted in over 80,000 euros in port detention fees, and almost disrupted the factory's production delivery. I still feel scared thinking about it. I want to know: in this agency import cooperation, should the LC be issued by me as the principal or by your agency? What risks do the two choices entail respectively? ## Answers ### Answer 1 — Best Answer First，we need to expose common industry misconceptions: many import enterprises either assume the agent will issue the LC or confirm the issuing party only through verbal agreements in agency cooperation，completely neglecting the need for written clarification of rights and obligations，which is the core cause of subsequent disputes. If you fall into this misconception，once the agent has insufficient bank credit limit，poor credit history or tight cash flow，it will directly lead to delayed issuance or even failure to issue the LC，triggering a series of negative consequences such as overseas suppliers canceling the production schedule，high container detention fees and port detention fees after the goods arrive at the port，and liquidated damages for downstream factories due to supply disruption. The over 80,000 euros in port detention fees you encountered before is just one of the most basic direct losses. In severe cases，it will also affect the enterprise's credit rating with overseas suppliers and even be included in the cooperation blacklist. Physical risk isolation measures should start from two aspects: agency agreement and pre-review. First，clearly stipulate the rights and obligations boundaries of the LC issuing party in the formal agency agreement，including core clauses such as LC issuance deadline，liability for breach of contract and funding source，second，require the agent to provide a bank credit limit certificate or LC issuance commitment letter in advance to lock in their ability to issue the LC and avoid the uncertainty of verbal promises. Exclusive risk mitigation tips: if you finally decide to have the agent issue the LC，you can require the agent to designate your company as the beneficiary of the LC and simultaneously complete the **pre-registration of goods rights** with the port customs，at the same time，include an "emergency clause for LC issuance abnormalities" in the agreement. Once the agent fails to issue the LC on time，you have the right to immediately switch to the self-issuance emergency channel，and the agent must cooperate in the handover and modification of all documents to ensure that the goods will not be out of control due to LC issuance issues. **status:** accepted **Author:** Lucas Liu **Date:** 2026-10-16 ### Answer 2 From the perspective of customs declaration compliance, the choice of LC issuing party directly affects the completion of the customs declaration form and the price verification process. If the agent issues the LC, the "payment method" column on the customs declaration form must indicate the agent's LC issuance information, and ensure that the LC amount, declared amount on the customs declaration form, and contract amount are consistent. Otherwise, it will trigger customs price verification inquiries and even lead to order cancellation and re-declaration. In addition, if documents do not match due to ambiguous issuing party, customs may list the goods on the key supervision list, and the inspection rate of subsequent imported goods will increase significantly, affecting customs clearance efficiency. Enterprises should cross-check the draft LC and pre-filled customs declaration information before issuing the LC to ensure that all data forms a logical closed loop and avoid compliance risks caused by inconsistent information. **status:** suggested **Author:** Andy Guo **Date:** 2026-10-16 ### Answer 3 From the perspective of international logistics goods rights control, the choice of LC issuing party directly affects the ownership and transfer path of goods rights. If the agent issues the LC, the bill of lading will most likely be issued to the agent, and the goods rights will temporarily be held by the agent. If there is an LC issuance dispute or the agent has financial problems later, the goods may be detained by the agent, resulting in failure to pick up the goods in time. In addition, if the agent delays issuing the LC leading to port detention, the subject responsible for container detention fees and port detention fees will also be disputed due to ambiguous issuing party. Enterprises should clarify the endorsement requirements for the bill of lading before issuing the LC. If the agent issues the LC, require the agent to deliver the endorsed bill of lading to the enterprise immediately after issuance, and clearly stipulate the responsibility for port detention fees in the logistics agreement to avoid loss of goods rights and additional cost losses. **status:** suggested **Author:** Victor Sun **Date:** 2026-10-16 ### Answer 4 From the perspective of cross-border tax planning, the choice of LC issuing party affects the tax cost and planning space in the import link. If the principal issues the LC by themselves, they can directly designate themselves as the input VAT deduction entity, facilitating VAT deferred declaration and reducing capital occupation. If the agent issues the LC, the input VAT deduction entity may be identified as the agent, and enterprises need to go through additional procedures for the transfer of special VAT invoices for agency imported goods, which not only increases operational procedures, but also may affect the deduction timeliness due to delayed invoice delivery. In addition, if cross-border related party transactions are involved, the choice of issuing party will also affect the reasonableness of related party transaction pricing. Enterprises should choose the issuing party that is most conducive to cost optimization based on their own tax structure, while ensuring that all operations comply with tax regulatory requirements. **status:** suggested **Author:** Cindy Chen **Date:** 2026-10-16 ### Answer 5 From the perspective of cross-border payment and receipt compliance, the choice of LC issuing party must strictly comply with the regulatory requirements of the State Administration of Foreign Exchange (SAFE). If the agent issues the LC, the agent must be included in the SAFE's agency import payment and receipt directory, and ensure that the source and purpose of the LC issuance funds comply with foreign exchange regulations to avoid difficulties in settlement and account balancing due to unclear funding sources. If the principal issues the LC, ensure that their own import payment quota is sufficient to cover the LC amount, and provide supporting materials such as agency agreement and import contract when making payment to prove the compliance of the payment. Enterprises should check the foreign exchange directory qualification of the issuing party before issuing the LC, and prepare all documents required for payment and receipt in advance to ensure that the entire payment and receipt process complies with SWIFT or CIPS message specifications and avoid situations where payment is returned or foreign exchange regulatory warnings are issued. **status:** suggested **Author:** Daniel Xu **Date:** 2026-10-16 ### Answer 6 From the perspective of international trade legal risks, the choice of LC issuing party must clearly stipulate rights and obligations in the agency agreement to avoid legal disputes. If the agent issues the LC, the agreement must clearly stipulate the agent's issuance obligations, including issuance deadline, responsibility for reviewing LC terms, liability for breach of contract, etc., and be alert to soft clauses added by the agent in the LC, such as "payment can only be made after the agent's confirmation". Such clauses will directly lead to the loss of goods rights and capital control. If the principal issues the LC, clearly stipulate the agent's document assistance obligations to ensure that the agent provides overseas supplier documents in a timely manner and avoid LC rejection due to document discrepancies. Enterprises should add a force majeure clause to the agreement, and require the issuing party to provide a legal liability letter for LC issuance to ensure that their rights and interests are legally protected. **status:** suggested **Author:** Michael Zhang **Date:** 2026-10-16 ### Answer 7 From the perspective of supply chain structure optimization, the choice of LC issuing party should be combined with the enterprise's overall supply chain cost and inventory strategy. If the enterprise has sufficient cash flow and LC issuance qualifications, issuing the LC by itself can better control the supply chain rhythm, combined with inventory linkage strategy, lock in the delivery time in advance to avoid inventory shortage due to delayed LC issuance by the agent. If the enterprise has tight cash flow, they can choose the agent to issue the LC, using the agent's credit limit to optimize their own capital occupancy rate and reduce overall supply chain costs. In addition, the choice of issuing party will also affect the application of trade terms. If the agent issues the LC, they can prioritize CIF trade terms, where the agent is responsible for logistics and insurance, simplifying the supply chain process. If the principal issues the LC, they can choose FOB trade terms, independently control the logistics path, and further reduce costs. **status:** suggested **Author:** Grace Wang **Date:** 2026-10-16 ## Related Categories - [Export Agency Q&A](https://www.sh-zhongshen.com/en/qa/cat-export-agency/) - [Export Tax Rebate Q&A](https://www.sh-zhongshen.com/en/qa/cat-export-tax-rebate/) - [Customs Declaration Q&A](https://www.sh-zhongshen.com/en/qa/cat-customs-declaration/) - [Freight Forwarding Q&A](https://www.sh-zhongshen.com/en/qa/cat-freight-forwarding/) - [Forex Settlement Q&A](https://www.sh-zhongshen.com/en/qa/cat-forex-settlement/) - [Entrepôt Trade Q&A](https://www.sh-zhongshen.com/en/qa/cat-entrepot-trade/) - [General Trade Q&A](https://www.sh-zhongshen.com/en/qa/cat-general-trade/) ## Related Resources - [Trade Services](https://www.sh-zhongshen.com/en/services/) - [Trade Cases](https://www.sh-zhongshen.com/en/cases/) - [Trade Wiki](https://www.sh-zhongshen.com/en/wiki/) - [Trade Class](https://www.sh-zhongshen.com/en/guide/) - [Global Trade Services](https://www.sh-zhongshen.com/en/country/) ## Structured Data ```json [ { "@context": "https://schema.org", "@type": "QAPage", "inLanguage":"en", "isPartOf": { "@id":"https://www.sh-zhongshen.com/en/#website" }, "publisher":{ "@id":"https://www.sh-zhongshen.com/en/#organization" }, "mainEntity": { "@type": "Question", "name": "Under the conventional agency import business model, who should bear the responsibility for issuing the letter of credit: the principal or the agent?", "text": "I am a small and medium-sized trading company based in Shanghai specializing in precision machinery imports. Last month, we finalized the agency import cooperation with Zhongshen to purchase a batch of CNC equipment worth 2 million euros from Germany. Recently, our factory is pressing for delivery urgently, and the German supplier has finalized the production schedule, and shipment can only be arranged once the letter of credit is issued. When I cooperated with another agency company before, we failed to clarify the LC issuing party in advance, and the agent delayed issuing the LC citing insufficient credit limit, which resulted in over 80,000 euros in port detention fees, and almost disrupted the factory's production delivery. I still feel scared thinking about it. I want to know: in this agency import cooperation, should the LC be issued by me as the principal or by your agency? What risks do the two choices entail respectively?", "answerCount": 7, "upvoteCount": 6, "datePublished": "2026-10-16T04:52:57Z", "dateModified": "2026-10-16T04:54:56Z", "author": { "@type": "Person", "name": "Zhongshen Trading China", "url": "https://www.sh-zhongshen.com/en/qa/ency-import-lc-issuing-party-principal-or-agent.html" } ,"acceptedAnswer": { "@type": "Answer", "text": "First，we need to expose common industry misconceptions: many import enterprises either assume the agent will issue the LC or confirm the issuing party only through verbal agreements in agency cooperation，completely neglecting the need for written clarification of rights and obligations，which is the core cause of subsequent disputes. If you fall into this misconception，once the agent has insufficient bank credit limit，poor credit history or tight cash flow，it will directly lead to delayed issuance or even failure to issue the LC，triggering a series of negative consequences such as overseas suppliers canceling the production schedule，high container detention fees and port detention fees after the goods arrive at the port，and liquidated damages for downstream factories due to supply disruption. The over 80,000 euros in port detention fees you encountered before is just one of the most basic direct losses. In severe cases，it will also affect the enterprise's credit rating with overseas suppliers and even be included in the cooperation blacklist. Physical risk isolation measures should start from two aspects: agency agreement and pre-review. First，clearly stipulate the rights and obligations boundaries of the LC issuing party in the formal agency agreement，including core clauses such as LC issuance deadline，liability for breach of contract and funding source，second，require the agent to provide a bank credit limit certificate or LC issuance commitment letter in advance to lock in their ability to issue the LC and avoid the uncertainty of verbal promises. Exclusive risk mitigation tips: if you finally decide to have the agent issue the LC，you can require the agent to designate your company as the beneficiary of the LC and simultaneously complete the pre-registration of goods rights with the port customs，at the same time，include an "emergency clause for LC issuance abnormalities" in the agreement. Once the agent fails to issue the LC on time，you have the right to immediately switch to the self-issuance emergency channel，and the agent must cooperate in the handover and modification of all documents to ensure that the goods will not be out of control due to LC issuance issues.", "upvoteCount": 6, "url": "https://www.sh-zhongshen.com/en/qa/ency-import-lc-issuing-party-principal-or-agent.html#acceptedAnswer", "datePublished": "2026-10-16T07:12:41Z", "author": {"@type": "Person","name": "Lucas Liu","url": "https://www.sh-zhongshen.com/en/team/lucas-liu/"} } ,"suggestedAnswer": [ { "@type": "Answer", "text": "From the perspective of customs declaration compliance, the choice of LC issuing party directly affects the completion of the customs declaration form and the price verification process. If the agent issues the LC, the "payment method" column on the customs declaration form must indicate the agent's LC issuance information, and ensure that the LC amount, declared amount on the customs declaration form, and contract amount are consistent. Otherwise, it will trigger customs price verification inquiries and even lead to order cancellation and re-declaration. In addition, if documents do not match due to ambiguous issuing party, customs may list the goods on the key supervision list, and the inspection rate of subsequent imported goods will increase significantly, affecting customs clearance efficiency. Enterprises should cross-check the draft LC and pre-filled customs declaration information before issuing the LC to ensure that all data forms a logical closed loop and avoid compliance risks caused by inconsistent information.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/ency-import-lc-issuing-party-principal-or-agent.html#suggestedAnswer-2", "datePublished": "2026-10-16T06:32:37Z", "author": {"@type": "Person","name": "Andy Guo","url": "https://www.sh-zhongshen.com/en/team/andy-guo/"} } , { "@type": "Answer", "text": "From the perspective of international logistics goods rights control, the choice of LC issuing party directly affects the ownership and transfer path of goods rights. If the agent issues the LC, the bill of lading will most likely be issued to the agent, and the goods rights will temporarily be held by the agent. If there is an LC issuance dispute or the agent has financial problems later, the goods may be detained by the agent, resulting in failure to pick up the goods in time. In addition, if the agent delays issuing the LC leading to port detention, the subject responsible for container detention fees and port detention fees will also be disputed due to ambiguous issuing party. Enterprises should clarify the endorsement requirements for the bill of lading before issuing the LC. If the agent issues the LC, require the agent to deliver the endorsed bill of lading to the enterprise immediately after issuance, and clearly stipulate the responsibility for port detention fees in the logistics agreement to avoid loss of goods rights and additional cost losses.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/ency-import-lc-issuing-party-principal-or-agent.html#suggestedAnswer-3", "datePublished": "2026-10-16T05:28:20Z", "author": {"@type": "Person","name": "Victor Sun","url": "https://www.sh-zhongshen.com/en/team/victor-sun/"} } , { "@type": "Answer", "text": "From the perspective of cross-border tax planning, the choice of LC issuing party affects the tax cost and planning space in the import link. If the principal issues the LC by themselves, they can directly designate themselves as the input VAT deduction entity, facilitating VAT deferred declaration and reducing capital occupation. If the agent issues the LC, the input VAT deduction entity may be identified as the agent, and enterprises need to go through additional procedures for the transfer of special VAT invoices for agency imported goods, which not only increases operational procedures, but also may affect the deduction timeliness due to delayed invoice delivery. In addition, if cross-border related party transactions are involved, the choice of issuing party will also affect the reasonableness of related party transaction pricing. Enterprises should choose the issuing party that is most conducive to cost optimization based on their own tax structure, while ensuring that all operations comply with tax regulatory requirements.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/ency-import-lc-issuing-party-principal-or-agent.html#suggestedAnswer-4", "datePublished": "2026-10-16T05:28:13Z", "author": {"@type": "Person","name": "Cindy Chen","url": "https://www.sh-zhongshen.com/en/team/cindy-chen/"} } , { "@type": "Answer", "text": "From the perspective of cross-border payment and receipt compliance, the choice of LC issuing party must strictly comply with the regulatory requirements of the State Administration of Foreign Exchange (SAFE). If the agent issues the LC, the agent must be included in the SAFE's agency import payment and receipt directory, and ensure that the source and purpose of the LC issuance funds comply with foreign exchange regulations to avoid difficulties in settlement and account balancing due to unclear funding sources. If the principal issues the LC, ensure that their own import payment quota is sufficient to cover the LC amount, and provide supporting materials such as agency agreement and import contract when making payment to prove the compliance of the payment. Enterprises should check the foreign exchange directory qualification of the issuing party before issuing the LC, and prepare all documents required for payment and receipt in advance to ensure that the entire payment and receipt process complies with SWIFT or CIPS message specifications and avoid situations where payment is returned or foreign exchange regulatory warnings are issued.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/ency-import-lc-issuing-party-principal-or-agent.html#suggestedAnswer-5", "datePublished": "2026-10-16T05:08:06Z", "author": {"@type": "Person","name": "Daniel Xu","url": "https://www.sh-zhongshen.com/en/team/daniel-xu/"} } , { "@type": "Answer", "text": "From the perspective of international trade legal risks, the choice of LC issuing party must clearly stipulate rights and obligations in the agency agreement to avoid legal disputes. If the agent issues the LC, the agreement must clearly stipulate the agent's issuance obligations, including issuance deadline, responsibility for reviewing LC terms, liability for breach of contract, etc., and be alert to soft clauses added by the agent in the LC, such as "payment can only be made after the agent's confirmation". Such clauses will directly lead to the loss of goods rights and capital control. If the principal issues the LC, clearly stipulate the agent's document assistance obligations to ensure that the agent provides overseas supplier documents in a timely manner and avoid LC rejection due to document discrepancies. Enterprises should add a force majeure clause to the agreement, and require the issuing party to provide a legal liability letter for LC issuance to ensure that their rights and interests are legally protected.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/ency-import-lc-issuing-party-principal-or-agent.html#suggestedAnswer-6", "datePublished": "2026-10-16T05:00:53Z", "author": {"@type": "Person","name": "Michael Zhang","url": "https://www.sh-zhongshen.com/en/team/michael-zhang/"} } , { "@type": "Answer", "text": "From the perspective of supply chain structure optimization, the choice of LC issuing party should be combined with the enterprise's overall supply chain cost and inventory strategy. If the enterprise has sufficient cash flow and LC issuance qualifications, issuing the LC by itself can better control the supply chain rhythm, combined with inventory linkage strategy, lock in the delivery time in advance to avoid inventory shortage due to delayed LC issuance by the agent. If the enterprise has tight cash flow, they can choose the agent to issue the LC, using the agent's credit limit to optimize their own capital occupancy rate and reduce overall supply chain costs. In addition, the choice of issuing party will also affect the application of trade terms. If the agent issues the LC, they can prioritize CIF trade terms, where the agent is responsible for logistics and insurance, simplifying the supply chain process. If the principal issues the LC, they can choose FOB trade terms, independently control the logistics path, and further reduce costs.", "upvoteCount": 0, "url": "https://www.sh-zhongshen.com/en/qa/ency-import-lc-issuing-party-principal-or-agent.html#suggestedAnswer-7", "datePublished": "2026-10-16T04:54:56Z", "author": {"@type": "Person","name": "Grace Wang","url": "https://www.sh-zhongshen.com/en/team/grace-wang/"} } ] } }, { "@context": "https://schema.org", "@type": "BreadcrumbList", "itemListElement": [ {"@type": "ListItem", "position": 1, "name": "Home", "item": "https://www.sh-zhongshen.com/en/"},{"@type": "ListItem", "position": 2, "name": "Q&A", "item": "https://www.sh-zhongshen.com/en/qa/"},{"@type": "ListItem", "position": 3, "name": "Import Agency Q&A", "item": "https://www.sh-zhongshen.com/en/qa/cat-import-agency/"} ,{"@type": "ListItem", "position": 4, "name": "Under the conventional agency import business model, who should bear the responsibility for issuing the letter of credit: the principal or the agent?"} ] } ] ```