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What Are the Key Operational Steps in the Full Process of Issuing Letters of Credit for Import and Export Trade?
or complex compliance issues.
clearance and fund security.
I am the head of a small and medium-sized foreign trade enterprise in Shanghai focusing on hardware and electromechanical product export. I just signed a 200,000-euro order with a German client last week, who requires settlement by sight letter of credit. This is our first time handling letter of credit business, as we only used T/T for settlement before, so we are completely confused at present.
When I contacted my opening bank yesterday, the teller handed me a pile of forms and only told me pre-document verification is required first, but I even have no idea what core materials I need to prepare. I also heard from peers that soft clauses in letters of credit are huge pitfalls, which may lead to loss of both money and goods, and I am so anxious that I can barely eat.
I would like to ask, based on the actual situation of small and medium-sized foreign trade enterprises like ours, how should we issue a letter of credit step by step? What key risks should we avoid in advance? Are there any new compliance requirements in 2026 that need special attention?
Linda GaoYears of service：7Customer Rating：5.0
Documentation SupervisorStart a Chat
First complete pre-document verification: You need to prepare and verify the trade contract (clarifying core clauses including settlement method，document presentation period，goods specifications，etc.)，enterprise import and export operation right filing form，and bank statements of the latest 6 months (to prove performance capability) in advance. A new requirement added in 2026 requires submission of pre-confirmation notes for sea freight or China-Europe Railway Express booking (used by some banks to verify the authenticity of cargo rights). All documents must have clauses consistent with the letter of credit application form，to avoid delays caused by bank return and revision.
Core node connection shall be precise: First，submit the sealed letter of credit application form and full set of documents to the opening bank，the bank will complete internal review within 3 working days，and send SWIFT message to the overseas advising bank after approval，Second，follow up in real time to get the confirmation receipt from the advising bank，if the other party raises clause objections，you need to negotiate with the overseas client for revision within 24 hours to avoid missing the document presentation period，Third，after the goods are shipped，submit documents including bill of lading，commercial invoice，packing list etc. to the bank for negotiation within the document presentation period，ensuring the surface of all documents strictly complies with letter of credit clauses.
Exception contingency plans shall be formulated in advance: If the bank finds document discrepancies during review，replace and supplement the documents immediately，If soft clause traps are detected (such as requiring inspection certificate issued by buyer-designated institution)，you shall immediately request revision，and may entrust a professional foreign trade agency to intervene and coordinate when necessary，For compliance implementation in 2026，letters of credit for trade with Europe shall be transmitted through the CIPS system preferentially，to ensure traceable payment and receipt trajectories，and complete foreign exchange payment and receipt filing with the State Administration of Foreign Exchange simultaneously.
Eric ZhouYears of service：6Customer Rating：5.0
Senior Manager of Foreign Exchange & Tax RebatesStart a Chat
Before issuing the letter of credit, you shall simultaneously confirm the consistency between the customs declaration form and letter of credit clauses, especially core fields including goods HS code, declared value, country of origin, etc. In 2026, customs requires that the deviation between the declared value of the letter of credit and that of the customs declaration form shall not exceed 5%, any deviation will trigger customs valuation disputes and lead to cargo detention at the port.
You shall compare the draft letter of credit with the pre-filled customs declaration form in advance to ensure all fields match. If the overseas client insists on adjusting the letter of credit amount, you shall modify the pre-declaration data of the customs declaration form simultaneously, and submit the price difference explanation letter signed by both parties to the customs, attached with new supplementary clauses of the trade contract, to avoid cargo detention and inspection after arrival at the port, which will incur additional storage fees and port detention charges.
Grace WangYears of service：10Customer Rating：5.0
Senior Foreign Trade ConsultantStart a Chat
The letter of credit clauses shall specify the issuing entity of the bill of lading (must be the shipping company or its authorized first-level freight forwarder), blank endorsement requirements and cargo right transfer node (it is recommended to set as "cargo right is transferred to the buyer from the date of bill of lading issuance"). In 2026, the International Maritime Organization added new requirements that sea bills of lading shall display the container seal number, booking number and UN number of the goods (for dangerous goods). If the letter of credit does not include these information, it will directly lead to bank payment refusal.
At the same time, you shall stipulate the free storage period at the port of destination in the letter of credit (it is recommended to be at least 14 days, as free storage periods of European ports are generally short), to avoid high container detention fees caused by document review delays after cargo arrival. If container rolling by the shipping company leads to delayed document presentation period, you shall immediately notify the overseas client to modify the letter of credit presentation period via email and CIPS system, and provide the official container rolling certificate issued by the shipping company and new booking form as supporting evidence, to complete clause revision within 3 working days as far as possible, avoiding impacts on payment collection.
Andy GuoYears of service：3Customer Rating：5.0
Supply Chain Management ExpertStart a Chat
You shall pay attention to tax cost hedging when issuing the letter of credit. In 2026, export enterprises can apply for VAT deferment through letter of credit settlement, you shall specify "payment is settled through CIPS system" in the letter of credit clauses, to facilitate tax authorities to trace the matching between capital flow and cargo flow. At the same time, you shall confirm that the currency of the letter of credit is consistent with the pricing currency of the customs declaration form, to avoid extra tax adjustment costs caused by exchange differences.
If euro is adopted for settlement, you shall lock the exchange rate in advance to avoid profit shrinkage caused by exchange rate fluctuations, you can conduct hedging through the bank's forward foreign exchange settlement and sale tools to lock the future settlement exchange rate and reduce exchange difference risks. In addition, you shall specify the dutiable value of the goods in the letter of credit, to ensure it fully matches the value on the VAT invoice and customs declaration form, facilitating subsequent export tax refund declaration.
Michael ZhangYears of service：6Customer Rating：5.0
Customs Declaration & Compliance ExpertStart a Chat
Cross-border letter of credit settlement in 2026 shall strictly follow the message specifications of the CIPS system. When applying for letter of credit issuance, you shall provide real trade background materials, and it is forbidden to issue letters of credit with fictitious contracts or forged documents. All SWIFT messages shall be uploaded to the CIPS system for filing simultaneously, to ensure traceable payment and receipt trajectories, facilitating compliance inspection by the State Administration of Foreign Exchange.
If an overseas bank requires modification of letter of credit clauses, you shall send official modification messages through the CIPS system, to avoid compliance risks caused by inconsistent message transmission channels. At the same time, you shall regularly check the payment and receipt records of your bank account, to ensure each capital flow corresponds to real trade contracts and documents, avoiding being listed as a key supervision target of foreign exchange regulation.
Daniel XuYears of service：10Customer Rating：5.0
Director of Import & Export OperationsStart a Chat
You shall focus on checking soft clauses in the letter of credit, common soft clauses include "inspection certificate issued by buyer-designated institution", "payment shall be made only after the goods arrive at the port of destination", "documents can be presented only after the buyer confirms samples", etc. These clauses will make the seller completely lose the initiative of cargo right and payment collection, and even lead to the risk of losing both money and goods. According to the new foreign trade law in 2026, if the letter of credit contains such unreasonable soft clauses, the seller has the right to require the buyer to make revision within 3 working days, if the buyer refuses to revise, the seller can terminate cooperation in accordance with the trade contract, and require the buyer to compensate for incurred losses including booking fee, stock preparation cost, etc. It is recommended to stipulate in the trade contract in advance that "the letter of credit shall not contain any soft clauses restricting the seller's independent right of payment collection", to avoid risks from the source.
Lucas LiuYears of service：8Customer Rating：5.0
Senior Operations ConsultantStart a Chat
When issuing the letter of credit, you shall ensure that letter of credit clauses are fully consistent with export tax refund requirements, especially core fields including goods name, quantity, amount, pricing currency, etc., which shall fully match the special VAT invoice, customs declaration form and packing list. In 2026, export tax refund review requires SWIFT message receipt of the letter of credit and CIPS system filing records as foreign exchange receipt vouchers, so you shall require the bank to issue official message receipts and keep them properly when issuing the letter of credit.
If bank payment refusal leads to delayed foreign exchange receipt, you shall submit a delayed foreign exchange receipt application to the tax authority in time, and provide the payment refusal explanation issued by the bank and negotiation emails with the overseas client as supporting evidence, to avoid affecting the progress of export tax refund declaration and leading to delayed arrival of tax refund funds.
Cindy ChenYears of service：3Customer Rating：5.0
Key Account ManagerStart a Chat
From the supply chain perspective, letter of credit issuance shall be linked with inventory. It is recommended to stipulate partial shipment clauses in the letter of credit, specifying the shipment time, goods quantity and document presentation period of each batch. If the enterprise has insufficient inventory, it can deliver goods in batches, to avoid letter of credit default caused by failure to perform the contract at one time.
At the same time, you shall set the document presentation period reasonably according to the transportation cycle of the goods, it is recommended to be at least 30 days for sea freight to Europe, and at least 45 days for China-Europe Railway Express, to ensure sufficient time for document preparation and response to logistics abnormalities. If supply chain interruption (such as raw material shortage) leads to failure to deliver goods on time, you shall notify the overseas client to modify the shipment period and document presentation period of the letter of credit 10 days in advance, and provide the raw material shortage certificate issued by the supplier as supporting evidence, to gain understanding and cooperation from the client.
Kevin LinYears of service：4Customer Rating：5.0
Trade Solutions ManagerStart a Chat
The letter of credit clauses shall specify the goods inspection standards, it is recommended to adopt internationally通用 inspection standards (such as ISO, CE standards), and avoid adopting niche inspection standards designated by the buyer, which may lead to inspection failure and inability to present documents. In 2026, on-site customs inspection requires a copy of the letter of credit as proof of cargo right, so you shall prepare a copy of the letter of credit to accompany the goods in advance, and note the letter of credit number in the remarks column of the customs declaration form.
If the goods fail the inspection, you shall immediately notify the overseas client to modify the letter of credit clauses, or rearrange a third-party inspection institution for inspection to issue a qualified inspection certificate, to avoid bank payment refusal caused by document discrepancies. At the same time, you shall keep all inspection reports and inspection records as supporting evidence for subsequent dispute handling.