Letters of Credit: The Fine Print That Makes or Breaks Your Deal

Letters of credit (LCs) are the backbone of secure trade between the United States and Latin America, reducing payment risk across borders with different legal systems and currencies. For US buyers sourcing from LATAM suppliers or LATAM exporters selling to US partners, understanding LC terms is critical to avoid costly delays, discrepancies, and disputes. This glossary breaks down the most important letter of credit terms for US-LATAM trade transactions, covering types, documents, and common pitfalls. Whether you are a first-time LC user or a seasoned trader, these definitions will help you navigate the process with confidence. Coppermont advises clients on structuring LCs for smooth US-LATAM-Africa trade.

Types of Letters of Credit

Irrevocable Letter of Credit – An LC that cannot be amended or canceled without the agreement of all parties—the buyer, seller, and issuing bank. This is the standard in US-LATAM trade because it provides the exporter with firm payment assurance. Most LATAM banks require irrevocable LCs for cross-border deals.

Revocable Letter of Credit – An LC that can be changed or canceled by the issuing bank at any time without the beneficiary’s consent. Rarely used in US-LATAM trade because it offers little security for the exporter. Avoid this type unless you fully trust the buyer.

Confirmed Letter of Credit – An LC where a second bank (usually in the exporter’s country) adds its guarantee to pay, even if the issuing bank defaults. For LATAM exporters selling to US buyers, confirmation by a US bank eliminates country risk and bank risk, making payment nearly certain. Confirmation fees typically range from 0.5% to 2% of the LC value.

Unconfirmed Letter of Credit – An LC that relies solely on the issuing bank’s promise to pay. Common when the issuing bank has a strong credit rating and the political/economic risk in the buyer’s country is low. For US buyers dealing with top-tier LATAM banks, an unconfirmed LC may suffice.

Standby Letter of Credit (SBLC) – A guarantee of payment if the buyer fails to fulfill a contractual obligation, such as paying for goods. Unlike a commercial LC, an SBLC is only drawn upon if something goes wrong. Frequently used in US-LATAM trade as performance bonds or payment guarantees for large infrastructure or commodity deals.

Transferable Letter of Credit – An LC that allows the original beneficiary (often a middleman) to transfer part or all of the credit to one or more secondary beneficiaries (the actual producers). Useful in LATAM trade where a US trader sources from multiple small suppliers in countries like Peru or Colombia.

Key Documents in an LC Transaction

Bill of Lading (B/L) – A document issued by the carrier that serves as a receipt for goods, a contract of carriage, and a document of title. In US-LATAM trade, the “clean on board” bill of lading is the most common LC requirement—it must show goods loaded in good condition. Any discrepancy here can cause a payment delay.

Commercial Invoice – A detailed bill from the seller to the buyer listing goods, quantities, prices, and terms of sale. The LC will specify exactly what the invoice must include, such as Harmonized System (HS) codes or Incoterms. LATAM customs authorities often require a notarized or legalized invoice.

Certificate of Origin – A document certifying where the goods were produced. For US-LATAM trade under free trade agreements (e.g., USMCA, Chile FTA, Peru FTA), this certificate is needed to claim preferential tariff rates. The LC should specify which form (e.g., NAFTA certificate, or a chamber of commerce form) is acceptable.

Inspection Certificate – A report from a third-party inspector confirming that goods meet the specifications in the sales contract. Common in LATAM agricultural and commodity exports to the US. The LC often requires this certificate to be issued by a named inspection company like SGS or Bureau Veritas.

Insurance Certificate – Proof that the goods are insured during transit. For US-LATAM ocean shipments, the LC typically requires coverage at 110% of the invoice value, with claims payable in the buyer’s currency. Marine cargo insurance is mandatory for compliance in most LC transactions.

Common LC Terms and Conditions

Latest Shipment Date – The final date by which goods must be shipped, as stated in the LC. If the exporter misses this date, the LC may expire or require an amendment. In LATAM trade, delays at ports are common, so build in a buffer of 10–15 days.

Expiry Date – The date after which the LC is no longer valid for presentation of documents. The exporter must submit all required documents to the bank before this date. In US-LATAM transactions, the expiry date is typically 21–30 days after the latest shipment date.

Period for Presentation – The number of days after the shipment date during which documents must be presented to the bank. The default under UCP 600 is 21 days, but the LC may specify a shorter period. LATAM exporters should confirm this with their bank to avoid late presentation.

Partial Shipments – The LC may allow or prohibit shipping goods in multiple lots. Allowing partial shipments is common for large orders of commodities like coffee or copper from LATAM, as it enables the exporter to ship as production completes.

Transshipment – The transfer of goods from one vessel to another during the journey. Some LCs prohibit transshipment because it increases risk of damage or delay. For US-LATAM routes with limited direct sailings, transshipment is often necessary and should be explicitly allowed in the LC.

Discrepancy – Any difference between the documents presented and the LC terms. Even a minor typo can cause a discrepancy, leading to payment delay or rejection. In US-LATAM trade, discrepancies are the leading cause of LC payment problems. Coppermont helps clients review LC drafts and documents to minimize discrepancies.

How Coppermont Helps

Navigating letter of credit terms in US-LATAM trade can be complex, especially when dealing with different banking practices, languages, and legal frameworks. Coppermont’s trade advisors work with US buyers and LATAM exporters to structure LCs that balance security with practicality. We review LC drafts before issuance, advise on confirmation and transferability options, and help resolve discrepancies when they arise. Whether you are importing coffee from Colombia or exporting machinery to Brazil, Coppermont ensures your LC transactions close smoothly, on time, and with minimal risk. Contact us to discuss your next US-LATAM trade deal.