LC (Letter of Credit)
/glossary/lcBank-issued payment guarantee providing security for buyer and supplier in large transactions.
An LC is a bank undertaking to honour a complying presentation of documents (UCP 600 Article 2). RP Sales accepts it for export orders and large public-sector contracts out of Kanpur. The issuing bank pays against the documents the credit lists, not against a verbal promise. GST 18% extra as the budgeting basis; the tax invoice applies the rate in force. GST and the product-specific HSN stay on the tax invoice, separate from bank charges, and must match the goods described in the credit.
In detail
Letter of Credit (LC) is a bank undertaking to honour a complying presentation of documents (UCP 600 Article 2). The LC substitutes bank credit for buyer credit, reducing supplier risk in large or first-time transactions. Types include irrevocable, confirmed, and transferable LCs. Document wording on the credit must match the PO. RP Sales accepts LC for export orders and large public-sector contracts.
What an LC is, and what it is not
A letter of credit and a documentary credit are the same instrument. The ICC Academy guide (updated October 2024, retrieved 2026-09-05) states that ICC rules, in particular UCP 600, use "documentary credit." UCP 600 is the 2007 Revision of the Uniform Customs and Practice for Documentary Credits and comprises 39 articles.
UCP 600 Article 2 names the parties: applicant (normally the buyer), issuing bank, advising bank, confirming bank, nominated bank, and beneficiary (normally the seller). Under UCP 600 Article 15, the issuing bank must honour when it determines that a presentation is complying. A confirming bank adds its own undertaking to honour or negotiate that same presentation, on top of the issuing bank. The applicant in a Kanpur pipe deal is the contractor, mill buyer, or export consignee. The beneficiary is RP Sales or the mill named on the credit.
An LC is not open-account credit. It is not 100% advance against proforma. It is not a bank guarantee in the UCP 600 sense of a secondary instrument; the ICC Academy text treats a documentary credit as a primary means of payment, independent of the sales contract (autonomy). UCP 600 Article 10 says a credit can neither be amended nor cancelled without agreement of the issuing bank, the confirming bank if any, and the beneficiary.
This glossary slug is not EN 10305-1 +LC. On DIN 2391 vs EN 10305, +LC is the cold-drawn light delivery condition that renamed DIN BKS. A precision-tube RFQ that says "+LC" is a mill condition, not a payment term. Keep those lines on the precision pages.
Buying steel pipe on LC from Kanpur
RP Sales accepts LC for export orders and large public-sector contracts. Name one of four instruments on the RFQ: 100% advance, staged advance plus CAD, Net-30/45 credit, or LC. A new private buyer pays 100% advance against proforma.
The Bartan Bazar / Basanti Nagar yard (208014) is the dispatch point. Goods move ex-warehouse Kanpur or FOR destination. Daily dispatch covers Uttar Pradesh, Bihar, Madhya Pradesh, Delhi NCR, and Uttarakhand. PWD, JJM, and sugar-mill shutdown orders that insist on LC must still name OD, wall or class, grade, MTC, and IBR on the RFQ, not only the credit number.
GST and the correct product-specific HSN stay on the steel invoice; they are not LC fees. Seamless pipe sits under heading 7304, certain large welded pipe under 7305, and other welded pipe under 7306. Reconcile the invoice classification with the credit before presentation.
See payment terms: advance vs LC vs credit, Kanpur steel market, steel pipes in Kanpur, and FAQ. Export LCs should list the documents the bank will examine: commercial invoice, packing list / dispatch challan, MTC, e-way bill or bill of lading, Form III-B when the line is an IBR tube, and Form III-C only when the line is a boiler mounting or fitting.
Who should open an LC, and who should not
Open an LC when the supplier does not know the buyer, when the contract is export, or when a PSU / PWD / JJM tender requires a bank-supported payment. Confirmed LC is for when the beneficiary wants a second bank's undertaking on top of the issuing bank (UCP 600 Article 2, confirming bank). Transferable LC is a named type on this glossary; use it only if the credit itself allows transfer.
Do not open an LC for a 1 MT stock pickup at Bartan Bazar. In-stock IS 1239 on 100% advance still leaves Kanpur without waiting for bank documents. Do not open an LC to hide an incomplete specification. The bank examines documents, not wall thickness.
UCP 600 sub-article 14 (b) limits the bank examination period to a maximum of five banking days following the day of presentation. That clock starts after the documents arrive at the bank. It does not include the days the buyer's bank spends issuing the credit or the days the advising bank spends releasing the text.
Do not treat an LC as a substitute for TPI or IBR. A complying presentation can still ship the wrong grade if the credit's document list never named SA213 T22 or Form III-B. Put the technical list on the credit and on the PO.
Advance versus LC versus credit for Kanpur pipe orders
Pick the instrument before arguing freight. Advance, staged payment, open credit, a tender-linked term, LC at sight, and usance LC allocate risk differently; name the one that matches the PO.
| Term | Typical use | Buyer risk | Supplier risk |
|---|---|---|---|
| Advance | New private buyer, stock pickup, mill indent | Pre-delivery exposure | Lower collection exposure |
| Staged payment | First relationship with a named checkpoint | Milestone evidence risk | Part collection exposure |
| Open credit | Approved repeat account | Delivery reconciliation | Collection exposure |
| Tender-linked term | PWD / JJM accepted project PO | Department/supplier cycle mismatch | Milestone exposure |
| LC at sight | Export, large orders, unknown parties | Document discrepancy | Issuing-bank/country risk remains |
| Usance LC | Deferred complying payment | Document and tenor risk | Deferred receipt |
Use advance for stock pickups and first private orders, staged payment for first relationships, open credit only after account approval, and LC for export and large public-sector work.
How to specify LC terms on a pipe RFQ
The credit must match the PO. A mismatch on quantity, Incoterm, or document list is how presentations fail. UCP 600 Article 5 treats banks as dealing with documents, not with goods.
- Instrument: irrevocable documentary credit, UCP 600. Sight or usance (30/60 days). Confirmed or not. Transferable only if required.
- Parties: applicant, issuing bank, advising / confirming bank, beneficiary (RP Sales or named mill).
- Amount and currency, plus GST 18% handling (whether GST is inside the credit amount or paid outside).
- Goods: process, grade, OD, wall or class, length, quantity, end finish, coating, IBR / TPI as on the RFQ.
- Documents: invoice, packing list / dispatch challan, MTC 3.1 or 3.2, bill of lading or e-way bill, Form III-B if the line is an IBR tube, Form III-C if the line is a boiler mounting or fitting, TPI release if named.
- Shipment: ex-warehouse Kanpur or FOR named place. Partial shipments and instalments: UCP 600 Article 32 cuts the credit if an instalment is missed.
- Presentation period and place. Banks have five banking days after presentation (UCP 600 sub-article 14 (b)).
- Amendments: none without beneficiary agreement (Article 10). Do not "fix" a wrong OD by informal email.
Worked example: an LC document set for a Kanpur order
Work an 80 NB Medium IS 1239 line of 60 lengths of 6 m as a document set. The row uses OD 88.9 mm and Medium wall 4.0 mm. W = (88.9 − 4.0) × 4.0 × 0.02466 = 8.3745 kg/m; 60 × 6 × 8.3745 = 3,014.82 kg, or about 3.015 MT. The MS ERW band for that row is ₹52-58 per kg as of 24 May 2026, so the steel line is about ₹1,56,771 to ₹1,74,860 before tax and freight.
The credit must name process (ERW), standard (IS 1239), class (Medium), size (80 NB), length (6 m), quantity (60 lengths), MTC type (EN 10204 3.1), and delivery (ex-warehouse Kanpur). The presentation then carries the commercial invoice, packing list / dispatch challan, MTC, and e-way bill or bill of lading that repeat those same fields. UCP 600 sub-article 14 (b) gives the bank a maximum of five banking days after the day of presentation to examine that pack. Article 5 treats the bank as dealing with documents, not with the wall thickness on the truck. A Panki fabricator who needs that stock next week should pay 100% advance against proforma and collect from Bartan Bazar; an LC is the wrong instrument for that clock.
If the same 60 lengths were SA213 T11 superheater tube, add Form III-B to the document list and keep Form III-C off the credit unless a mounting or fitting is on the same PO. A missing form is a discrepancy even when the steel is correct.
Common LC mistakes on pipe orders
In practice, the first failure is a credit that says "MS pipe" while the PO says IS 1239 Medium, 50 NB, 6 m, MTC 3.1. The bank can honour a generic invoice that the site inspector later rejects. Copy the PO specification into the credit.
The second failure is a late amendment. Article 10 requires the beneficiary to agree. A Kanpur dispatch already loaded against the original credit cannot be rewritten by WhatsApp.
The third failure is a dirty transport document. UCP 600 Article 27: banks accept clean transport documents, meaning the document does not declare a defective condition of goods or packing. A rejection note on the truck is not a clean presentation.
The fourth failure is using LC on a stock order that the glossary lead-time entry lists as 3-7 days. Bank time exceeds mill time. Use advance or CAD.
The fifth failure is omitting Form III-B on an IBR boiler-tube credit, or asking for Form III-C on the tube heat. Form III-C is the certificate for boiler mountings and fittings. The bank may pay. The UP boiler inspector will not register the bank.
UCP 600 rules that affect a Kanpur dispatch
UCP 600 (2007 Revision, 39 articles) is the ICC code of practice for documentary credits. The ICC guidance-papers page retrieved 2026-09-03 discusses on-board notation under articles 19-22, strict compliance, drafts under Article 2, and a simple credit format. eUCP Version 2.1 is a digital supplement to UCP 600; the ICC page retrieved the same day states it came into force in July 2023.
Article 14 (j) allows beneficiary and applicant addresses on documents to differ from the credit if they stay in the same country. Contact details can be disregarded, except when applicant details appear as consignee or notify party on a transport document. That matters when the invoice shows Bartan Bazar and the credit shows a Lucknow registered office.
UCP 600 Article 2 defines a complying presentation as one that follows the credit's terms, UCP 600 provisions, and international standard banking practice. Under Article 15, the issuing bank must honour when it determines that a presentation complies. ISBP 821 explains banking practice and does not amend UCP 600. Ask the issuing bank to require only documents that customs or the site actually need: invoice, transport document, MTC, Form III-B when the line is an IBR tube, and Form III-C when the line is a boiler mounting or fitting.
RP Sales will not treat an LC as received until the advising bank has released the text. Production of mill-direct SA213 or special ERW does not start on a draft SWIFT that the beneficiary has not accepted.
Where you'll meet this in procurement
You will meet LC (Letter of Credit) when setting commercial and logistics terms. Spell out LC (Letter of Credit) on the RFQ or PO so price, quantity, delivery point, and lead time are comparable across suppliers and disputes at dispatch are avoided.
Related terms
Related resources
Key points
- LC / documentary credit is a bank undertaking to honour a complying presentation of documents (UCP 600 Article 2), not EN 10305 +LC mill condition.
- RP Sales accepts LC for export and large public-sector contracts. A new private buyer pays 100% advance against proforma.
- GST and the product-specific HSN belong on the steel invoice, not the LC fee.
- UCP 600 Article 10 blocks silent amendments. Sub-article 14 (b) caps bank examination at five banking days after presentation.
- Dispatch remains ex-warehouse Kanpur. Name grade, size, MTC, and the correct IBR form (III-B for tubes, III-C for mountings and fittings) on the credit, not only on the PO.
Frequently asked questions
Sources
- UCP 600 (2007 Revision). ICC Uniform Customs and Practice for Documentary Credits, 39 articles; parties (Art. 2), amendments (Art. 10), examination period (Art. 14(b)), clean transport (Art. 27), instalments (Art. 32) (ICC Academy / International Chamber of Commerce)
- ICC UCP 600 guidance papers. Set of Guidance Papers on Recommended Principles and Usages around UCP 600 (on-board notation Arts. 19-22, strict compliance, drafts, simple format) (International Chamber of Commerce)
- eUCP Version 2.1. Electronic supplement to UCP 600; ICC page states it came into force July 2023 (International Chamber of Commerce)
- Indian Boiler Regulations, 1950. Forms index: III-A steam pipes, III-B tubes, III-C boiler mountings and fittings (Central Boilers Board, Government of India)