An advice of credit is the formal notification an exporter receives from a bank in their own country telling them that a letter of credit has been opened in their favor by the buyer’s bank abroad. The bank sending the notification, called the advising bank, checks the credit for apparent authenticity and passes the exact terms along so the exporter can review them before shipping. Two rulebooks govern the process: the International Chamber of Commerce’s Uniform Customs and Practice for Documentary Credits (UCP 600) internationally, and Article 5 of the Uniform Commercial Code in the United States.
Where the Advice Fits in the Transaction
The advice is one step in a longer payment chain. A buyer and seller agree on a sale, and the buyer applies to their bank, the issuing bank, to open a letter of credit favoring the seller. The issuing bank drafts the credit and transmits it electronically to a bank in the seller’s country. That bank reviews the credit for authenticity and forwards it to the seller as the advice of credit.1International Trade Administration. Letter of Credit
Once the seller has the advice, they ship the goods and assemble the documents the credit specifies: usually a commercial invoice, bill of lading, packing list, and any required certificates. Those documents go to the seller’s bank, which checks them against the credit’s terms and forwards them to the issuing bank. If everything matches on the face of the paperwork, the issuing bank pays and releases the documents to the buyer, who uses them to claim the goods.1International Trade Administration. Letter of Credit
The whole system runs on documents, not on the goods themselves. No bank inspects the cargo. That is why the advice matters so much: the terms it carries are the exact benchmarks the seller’s paperwork will later have to match.
What the Advising Bank Is Actually Promising
The advising bank’s role is narrower than many exporters assume. Under UCP 600 Article 9, advising a credit means the bank has satisfied itself as to the credit’s apparent authenticity and that the advice accurately reflects the terms received from the issuing bank.2International Chamber of Commerce. UCP 600 – Uniform Customs and Practice for Documentary Credits The bank authenticates the message and passes it on. It does not guarantee payment.
U.S. law tracks the same duty. Under UCC § 5-107(c), an adviser undertakes to accurately convey the credit’s terms and to check the apparent authenticity of the request. Even if the advice contains an error, the letter of credit itself remains enforceable as issued.
If the advising bank cannot verify authenticity, it has two choices. It can decline to advise and notify the issuing bank, or it can advise the credit anyway while telling the beneficiary that authenticity could not be confirmed.2International Chamber of Commerce. UCP 600 – Uniform Customs and Practice for Documentary Credits The second option lets the deal proceed while putting the exporter on notice to look harder before shipping.
Advising Versus Confirming
The single most important thing to know about your advising bank is whether it is also confirming the credit. An advising bank authenticates and forwards; it takes on no payment risk. A confirming bank adds its own binding promise to pay when compliant documents are presented. Under UCP 600 Article 8, a confirming bank is irrevocably bound to honor or negotiate from the moment it adds its confirmation.2International Chamber of Commerce. UCP 600 – Uniform Customs and Practice for Documentary Credits If the issuing bank cannot pay because of insolvency, currency controls, or political disruption, a confirming bank still has to pay.
The fees reflect that difference. Advising fees are modest, often a flat charge in the range of $50 to $300 or a small fraction of the credit’s value. Confirmation fees typically run between 0.25% and 2% of the credit amount because the confirming bank is underwriting the issuing bank’s ability to pay.
Exporters dealing with buyers in economically or politically unstable countries often insist on confirmation. If your advice arrives without confirmation and you have concerns about the issuing bank or its jurisdiction, ask the advising bank whether it will confirm. The added fee is an insurance premium against non-payment.
What to Read on the Advice
Banks transmit letters of credit in standardized SWIFT messages. The MT700 carries the credit from the issuing bank to the advising bank; the advising bank uses an MT710 if it needs to forward the credit onward.3SWIFT. Category 7 – Message Reference Guide The mandatory fields are the same every time, which makes reviewing an advice a matter of working down a checklist rather than reading prose.
Key fields to compare against your sales contract:
- Form of documentary credit — whether it is irrevocable, transferable, or has other special features.
- Currency and amount.
- Date and place of expiry — when and where documents must be presented.
- Applicant and beneficiary — the buyer and seller, whose names and addresses must match exactly across every document you later produce.
- Available with… by… — which bank pays and by what method (at sight, deferred payment, acceptance, or negotiation).
- Latest date of shipment.
- Description of goods — must match the sales agreement precisely.
- Documents required — the exact list you must present to trigger payment.
- Additional conditions — special clauses such as inspection certificates or legalized documents.
- Charges — who pays which banking fees.
- Confirmation instructions — whether the credit is to be confirmed by the advising bank.
The applicable rules field is also worth checking. It tells you which rulebook governs. UCP 600 covers commercial documentary credits used in import and export; standby letters of credit are usually governed by ISP98 and function differently, more like a guarantee triggered by a written demand.4ICC Academy. An Overview of UCP 600 and ISP98 If your advice is for a commercial credit, expect UCP 600.
Why Every Field Has to Match: Strict Compliance
The reason to read the advice so carefully is that documents will later be judged on a strict compliance standard. Under UCC § 5-108, an issuer must honor a presentation that appears to strictly comply and must dishonor one that does not.5Trans-Lex.org. UCC Article 5 – Letters of Credit Close enough is not enough. A misspelled beneficiary name, a transposed digit in an invoice amount, or an insurance certificate covering the wrong voyage can all trigger refusal.
The examining bank has a maximum of five banking days following the day of presentation to decide whether the documents comply.6ICC Academy. Documentary Credits – Rules, Guidelines and Terminology That window is fixed. An approaching expiry date does not shorten it and complexity does not extend it. If discrepancies are found, the bank must notify the presenter within those five days, specify each discrepancy, and say whether it will hold the documents, return them, or seek instructions. A bank that fails to give proper notice within the window loses the right to refuse and is treated as having accepted the documents.
Most discrepancies are preventable. The problems that come up over and over are missing documents the credit required, goods descriptions that do not match the credit’s wording, and documents that have expired or carry incorrect dates. Every one of these is easier to fix while the goods are still in your warehouse than after the paperwork has been rejected.
What to Do Before You Ship
Receiving the advice is the start of due diligence, not the end. Read the credit against your sales contract field by field. Any term you cannot comply with has to be flagged and amended before shipment. Amendments are possible but each one costs money and takes time to move through the banking chain, so catching problems early is far cheaper than fixing them mid-shipment.
Pay particular attention to the documents required, the goods description, and the latest shipment date. Those three fields produce the most rejections. If the credit calls for a certificate of origin from a specific chamber of commerce and you normally use a different certifying body, resolve that before goods leave the warehouse. If the goods description in the credit does not match what your invoice will say, get it amended.
Confirm the confirmation status. If the credit is unconfirmed and you have doubts about the issuing bank or its country, ask the advising bank to add confirmation. Weigh the fee against the payment risk you would otherwise carry.
Track two deadlines from the moment the advice arrives: the credit’s expiry date, and the period for presentation, meaning the number of days after shipment within which you must submit documents. Missing either is fatal to your payment claim. No amount of otherwise compliant paperwork will rescue a late presentation.
If the Advice Is Wrong
When an advising bank transmits incorrect terms, responsibility depends on where the error came from. If the issuing bank drafted the credit with wrong terms, that liability sits with the issuing bank. If the advising bank introduced errors during transmission, the advising bank can be held responsible for losses the inaccuracy caused. Under UCC § 5-108, an issuer must observe the standard practice of financial institutions that regularly issue letters of credit, and courts decide whether a bank met that standard.5Trans-Lex.org. UCC Article 5 – Letters of Credit
Act quickly if you spot a problem. Under UCC § 5-115, any legal action must be filed within one year after the credit’s expiration date or one year after the claim accrues, whichever is later. The clock starts when the breach happens, regardless of whether you know about it yet.7Legal Information Institute. UCC 5-115 – Statute of Limitations One year is short by commercial-litigation standards, and a problem discovered late in the credit’s life can push you against the deadline.