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.
What is a Letter of Credit?
A Letter of Credit is a bank guarantee. The buyer's bank promises to pay the seller, on behalf of the buyer, when the seller presents the correct documents (commercial invoice, bill of lading, packing list, certificate of origin, etc.) within the LC's terms. It protects the seller against non-payment and the buyer against non-delivery.
How the proforma invoice triggers the LC
- Seller issues a proforma invoice with full details (HS codes, Incoterms, ports, value, payment terms)
- Buyer takes the proforma to their bank and applies for an LC
- Buyer's bank opens the LC, copying the terms from the proforma
- Seller receives LC, verifies it matches the proforma exactly
- Seller ships goods and presents documents to their bank within LC validity
- Buyer's bank pays seller's bank (at sight or on the usance date)
Fields on the proforma that must exactly match the LC
| Proforma field | Why it must match |
|---|---|
| Product description | Bank compares commercial invoice description word-for-word against LC |
| HS code | Used by bank for commodity risk and customs cross-check |
| Total value | LC amount must equal or exceed proforma total — cannot present over LC amount |
| Currency | LC and all documents must be in the same currency |
| Incoterms + named place | Bill of lading must match: "FOB Shanghai" ≠ "FOB China" |
| Port of loading | Shipping documents must show same port as stated in LC/proforma |
| Port of discharge | Same — any variation causes discrepancy |
| Latest shipment date | Bill of lading date must be on or before this date |
| Validity date | LC expiry must allow enough time after shipment to present documents |
| Seller name and address | Must match exactly as it appears in the LC beneficiary field |
Common LC discrepancies caused by a wrong proforma
- Description mismatch — "Cotton Fabric, Grey" on proforma but "Grey Cotton Fabric" on commercial invoice. Banks reject minor wording differences.
- Value over LC amount — if freight was added after the proforma, the commercial invoice total exceeds the LC — bank refuses the presentation.
- Wrong port — proforma said "CIF Hamburg" but goods shipped via Rotterdam. The bill of lading does not match the LC.
- Expired LC — proforma validity was 30 days but LC validity was set at 45 days; shipment was late and LC expired. Always verify LC expiry vs. your lead time.
- Beneficiary name wrong — a comma or abbreviated company name in the LC that does not match your bank account name causes payment issues.
How to issue an LC-ready proforma invoice
- Use the exact legal name of your company — match it to your bank account.
- State Incoterms with the exact named place: "FOB Shanghai Port" not "FOB China."
- Include HS codes on every line item.
- Set validity to match your LC timeline — typically 90 days.
- State the port of loading and discharge precisely.
- Agree the LC amount to include all charges (freight, insurance) — do not let the LC be opened for less than your invoice total.
- When you receive the LC, read every term before starting production. If anything conflicts with the proforma, request an LC amendment immediately — amendments are much easier before shipment than after.
Use our export proforma invoice guide for a full checklist of export fields. Download a free proforma invoice template with all LC-required fields pre-formatted.
Comments (0)
No comments yet. Be the first to share your thoughts!
Leave a comment
Your comment will appear after it's reviewed. Your email is never shown publicly.