Letter of Credit Payment Terms: Examples and Conditions
How to write and read Letter of Credit payment terms in a sales contract and an MT700 — availability, tenor, amount, tolerance, charges and confirmation — with example wording.
3 min readUpdated 2026-10-13Written by LCCheck team
Short answer
Letter of Credit payment terms are the parts of the sales contract and the credit that decide how, when and how much the seller is paid: the type of credit, where it is available and how (payment, acceptance, negotiation or deferred payment), the tenor, the amount and tolerance, who pays charges, and whether it is confirmed. Agree them in the contract before the credit is issued.
In this guide
| Agree first in | The sales contract |
|---|---|
| Amount and tolerance | MT700 32B and 39A |
| Availability and tenor | 41a, 42C/42P |
| Charges and confirmation | 71D and 49 |
The terms to agree
| Term | MT700 field | Example wording | Why it matters |
|---|---|---|---|
| Form | 40A | Irrevocable | Cannot be cancelled without your agreement |
| Amount | 32B | USD 48,000.00 | Invoice must not exceed it |
| Tolerance | 39A | 05/05 | Allows 5% more or less |
| Availability | 41a | Any bank by negotiation | Where you present and how you are paid |
| Tenor | 42C / 42P | At sight; 90 days after B/L date | When you are paid |
| Expiry | 31D | 5 June 2026, Hamburg | Last date and place to present |
| Presentation period | 48 | 21 days after shipment | Time to collect and present documents |
| Charges | 71D | All charges outside issuing bank for beneficiary | Deductions from your payment |
| Confirmation | 49 | Confirm / May add / Without | Whether a second bank is bound |
Example contract clause
A fictional clause might read: 'Payment by irrevocable documentary credit subject to UCP 600, issued by a first-class bank acceptable to the seller, confirmed by a bank in the seller's country, available by payment at sight, for 100% of the contract value with 5% tolerance, valid for presentation in the seller's country 21 days after the latest shipment date of 10 May 2026. Charges outside the issuing bank for the buyer's account.'
Each phrase maps to a field the seller can check in the draft or issued credit. If the credit arrives with charges for the beneficiary or expiry in the buyer's country, the seller can ask for an amendment before shipping. See draft LC review and how to request an amendment.
Terms versus conditions
Payment terms set the commercial deal. Conditions — usually in field 47A — add requirements to documents, such as showing the credit number or having a certificate countersigned. A condition that depends on the buyer, like a countersignature, is a risk because the buyer can delay compliance. It is not a discrepancy until documents fail to meet it. See field 47A.
Common payment-term problems
Compare timing in sight vs usance and estimate charges with the cost calculator. Then upload your Letter of Credit to LCCheck to see the deadlines and documents it sets.
- Amount set without tolerance when the quantity may vary.
- Expiry place abroad, so courier time eats into the presentation period.
- Presentation period too short to collect all the documents.
- Tenor counted 'after sight' when the contract said 'after bill of lading date'.
- Charges all for the beneficiary, unexpectedly reducing the payment.
- Confirmation agreed but field 49 says WITHOUT.
Questions
Who decides the payment terms?
Buyer and seller agree them in the sales contract. The buyer then asks its bank to issue a credit on those terms. The seller should check the issued credit against the contract and request amendments for any difference before shipping.
What does 'available by negotiation' mean?
A nominated bank, or any bank if the credit is freely available, may advance funds to the seller against compliant documents before the issuing bank reimburses it. It is common in export credits because the seller can present locally.
Should the contract name the issuing bank?
It often says 'a first-class bank acceptable to the seller'. Naming acceptable banks, or requiring confirmation, protects the seller from an issuing bank it cannot rely on.
Is a 100% LC amount always best?
It is the usual choice, but where quantities vary, add a tolerance in field 39A or use the word 'about', which UCP 600 treats as 10% more or less. Without it, a small overshipment makes the invoice exceed the credit.
Are payment terms the same as Incoterms?
No. Incoterms decide delivery, costs and risk for the goods; LC payment terms decide how the money is paid. They interact — for example, CIF requires an insurance document that the credit must list in 46A.
What if the credit has a shorter presentation period than agreed?
Ask for an amendment before shipping. Once goods have shipped, the seller has little leverage, and a late presentation is a discrepancy the bank can refuse.
Sources
- ICC — UCP 600, Uniform Customs and Practice for Documentary Credits
- ICC Academy — trade finance learning
- US International Trade Administration — Letters of Credit
General guidance, not legal advice. Rules are explained in our own words; read the official ICC and Swift texts for exact wording. Your bank examines documents independently.
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