A proforma invoice and a Letter of Credit (LC) are inseparable in high-value export transactions. The buyer uses your proforma invoice to instruct their bank to open the LC. If the proforma is inaccurate or incomplete, the LC will be issued with wrong terms — and when you present shipping documents, the bank will find discrepancies and refuse payment.
Quick answer: A proforma invoice is the document a buyer gives their bank to open a Letter of Credit. The bank copies the proforma's terms — product description, value, Incoterms, ports, and latest shipment date — directly into the LC. Every field on your later shipping documents must match the proforma exactly, or the bank can flag a discrepancy and refuse payment under UCP 600.
What is a Letter of Credit?
A Letter of Credit is a conditional bank guarantee. The buyer's bank (issuing bank) promises to pay the seller (beneficiary), provided the seller presents the correct documents within the LC's conditions. It protects the seller against non-payment and the buyer against non-delivery — because the bank only pays when shipping evidence is produced.
LCs are governed by the ICC's Uniform Customs and Practice for Documentary Credits (UCP 600), which means the same rules apply worldwide. Banks are required to examine documents strictly — any discrepancy, even a minor wording difference, entitles the bank to refuse the presentation.
How the proforma invoice triggers the LC — step by step
- Seller issues proforma invoice with full export details: product description, HS codes, value, Incoterms, port, payment terms, validity.
- Buyer takes the proforma to their bank and applies for an LC, using the proforma as the basis for all LC conditions.
- Issuing bank opens the LC, copying the conditions from the proforma into the LC text. The LC is sent to the seller's bank (advising/confirming bank).
- Seller receives and checks the LC — every term must match the proforma exactly. If anything is wrong, request an amendment before starting production.
- Seller ships goods and prepares documents: commercial invoice, bill of lading, packing list, certificate of origin, inspection certificate (as required by the LC).
- Seller presents documents to their bank within the LC validity and presentation period (usually 21 days from shipment).
- Banks examine documents against the LC terms. If compliant, the issuing bank pays. At sight = immediate; usance = on the deferred date (30/60/90 days).
Fields on the proforma that must exactly match the LC
| Proforma field | Risk if it differs |
|---|---|
| Product description | Banks compare commercial invoice description word-for-word against LC. "Cotton Kurta" ≠ "Kurta – Cotton" — bank can refuse. |
| HS code | Commodity risk flag; wrong code may trigger inspection or outright rejection. |
| Total value / LC amount | Commercial invoice cannot exceed LC amount. If freight was added after the proforma, the total may exceed the LC — bank refuses. |
| Currency | All documents must be in the same currency as the LC. Mixed currencies cause discrepancy. |
| Incoterms + named place | "FOB Shanghai" ≠ "FOB China" — named place must be exact. Bill of lading must match. |
| Port of loading | Bill of lading must show same port. Shipping via a different port causes discrepancy. |
| Port of discharge | Same — any variation is a discrepancy under UCP 600. |
| Latest shipment date | Bill of lading date must be on or before this date. Late shipment = discrepancy. |
| Beneficiary name and address | Must match exactly as it appears in the LC. A missing comma or abbreviated name causes payment issues. |
| Validity period | LC expiry must be after the presentation period. If your lead time pushes shipment close to expiry, request a longer LC. |
The most common LC discrepancies — and how the proforma causes them
According to ICC surveys, approximately 70–75% of first presentations under LCs contain at least one discrepancy. Most originate from mismatches between the proforma and the shipping documents that follow.
1. Description mismatch
The proforma said "100% Cotton Dress Fabric, Grey" but the commercial invoice says "Grey Cotton Fabric (100% Cotton)." The words are the same but the order differs. Under UCP 600 Article 14, banks examine documents on their face — they are not allowed to infer equivalence. Fix: copy the exact description from the proforma, word for word, to every subsequent document.
2. Value over the LC amount
The proforma was for $10,000 FOB. The buyer opened an LC for $10,000. After the proforma was confirmed, the seller added $300 packing charges to the commercial invoice, making it $10,300. The bank refused — the presentation exceeded the LC amount. Fix: ensure the proforma includes all charges (packing, inspection fees, any surcharges) so the LC is opened for the full amount.
3. Wrong or vague named place in Incoterms
Proforma stated "CIF" without a named port. The buyer's bank wrote "CIF India" in the LC. The bill of lading showed "CIF Nhava Sheva." Discrepancy — named places must match exactly. Fix: always write the full Incoterm with named place on the proforma: "CIF Nhava Sheva (JNPT), India."
4. Late shipment
The proforma validity was 60 days but the LC specified "Latest shipment date: 30 June 2026." Production delays pushed shipment to 3 July. Bill of lading date was after the LC cut-off. Fix: check the LC's latest shipment date as soon as you receive it. If your lead time cannot meet it, request an LC amendment immediately.
5. Expired LC / late presentation
Goods were shipped on time but the seller took 25 days to collect documents and present to the bank. The LC required presentation within 21 days of shipment. Discrepancy — late presentation. Fix: count the presentation period from the bill of lading date, not from when goods arrived at destination.
6. Missing documents
The LC required a certificate of origin and a packing list, but the proforma did not mention them. The seller forgot to obtain the certificate of origin. Fix: list all required documents on the proforma (or in the accompanying email) so both sides know what to prepare. Sellers should request a draft LC from the buyer's bank before finalising the proforma.
How to request an LC amendment
If the LC arrives with terms that differ from your proforma, do not start production. Request an amendment:
- Email the buyer immediately — specify exactly what needs to change (e.g. "Please amend latest shipment date from 30 June to 31 July").
- The buyer instructs their bank to issue an amendment.
- The amendment is transmitted to your advising bank and then to you.
- You formally accept the amendment in writing to your bank.
- Only then can you proceed with production and shipment.
Amendments cost money (typically $50–$150 per amendment from the issuing bank) and take 3–7 banking days. This is why getting the proforma right the first time saves significant time and cost.
Sight LC vs usance LC — which to request on your proforma
| LC type | Payment timing | Who benefits | When to use |
|---|---|---|---|
| Sight LC | Bank pays immediately on compliant document presentation | Seller — fastest cash | New buyers, custom goods, high-value orders |
| Usance LC (deferred) | Payment due 30/60/90/180 days after sight or shipment date | Buyer — credit period to sell goods before paying | Established relationships, commodity trade |
| Confirmed LC | Seller's bank adds its own guarantee to the issuing bank's promise | Seller — protection against issuing bank default | High-risk countries, unfamiliar banks |
| Standby LC | Only drawn upon if the buyer defaults on open account payment | Buyer — allows open account trading with a safety net | Long-term established relationships |
How to write an LC-ready proforma invoice
- Use your exact legal company name — it must match your bank account and all shipping documents.
- State Incoterms with the exact named place: "FOB Shanghai Yangshan Port" not "FOB China."
- Include the HS code on every line item.
- State the port of loading and port of discharge precisely.
- Set validity to 90 days minimum — give the buyer time to open the LC and give yourself lead time.
- Include all charges in the total — no surprises after the LC is opened.
- Request the draft LC from the buyer's bank before finalising the proforma for large orders.
- On receipt of the LC, compare every field against the proforma before starting production.
Frequently asked questions
Can a proforma invoice be used to open a Letter of Credit?
Yes — the proforma invoice is the standard document buyers present to their bank when applying to open an LC. The bank uses it to set the LC conditions: description, amount, currency, Incoterms, ports, and latest shipment date.
Does the proforma invoice need to match the LC exactly?
Yes. Every field on the commercial invoice and shipping documents you present must match the LC — which was written based on the proforma. Any discrepancy gives the bank the right to refuse payment under UCP 600.
What happens if there is a discrepancy between the proforma and the LC?
Request an LC amendment before shipment. Presenting documents with discrepancies means the bank can refuse payment and will issue a discrepancy notice. You must then either get the buyer to waive the discrepancy (risky) or correct the documents (often impossible after shipment).
How long should the LC validity be on a proforma invoice?
State an LC validity of at least 90 days from LC opening date. This gives the buyer time to process the LC and gives you a realistic production and shipment window. Add a 21-day presentation period on top of the latest shipment date when setting the expiry.
What is a confirmed LC?
A confirmed LC is one where a second bank (usually in the seller's country) adds its own payment guarantee on top of the issuing bank's guarantee. This protects the seller if the issuing bank or buyer's country experiences financial difficulties. Request a confirmed LC on the proforma payment terms line when dealing with high-risk markets.
Can a proforma invoice be used for a standby LC?
Yes. A standby LC is used as security for open-account trading — the seller issues invoices on credit, and the standby LC is only drawn upon if the buyer fails to pay. The proforma sets the maximum amount and conditions under which the standby LC can be called.
Download a free LC-ready proforma invoice template with all required fields pre-formatted. For the full export checklist, read the export proforma invoice guide.
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