Documentary Credit Amendment

A documentary credit amendment is a formal change to the terms of a letter of credit after it has been issued. Typical amendments extend the expiry date or latest shipment date, increase or reduce the amount, change the port of loading, add or remove a document requirement, or allow partial shipments or transshipment that the original credit prohibited. The importer (applicant) asks its bank to issue the amendment, normally because the sales contract or shipping plans have changed.

Because an irrevocable credit is a binding promise to the beneficiary, it cannot simply be rewritten. Article 10 of UCP 600 sets the rule: a credit can be neither amended nor cancelled without the agreement of the issuing bank, the confirming bank (if there is one) and the beneficiary. Amendments are sent between banks as a SWIFT MT707 message.

Think of a signed rental agreement. The landlord cannot change the rent or the move-in date on its own; any change needs the tenant to agree, and until the tenant agrees, the old terms stand. Equally, the tenant cannot pick only the parts of a proposed change it likes and ignore the rest.

A letter of credit works the same way. The buyer's bank can propose a change, and once it has sent it, the bank itself is bound by the new terms. The exporter, though, is still entitled to the old terms until it says yes. If it says yes, it must accept the whole change. If it says nothing but later ships under the new terms, its documents count as its answer.

• The issuing bank is bound on issue. It is irrevocably bound by an amendment from the time it issues it. A confirming bank may extend its confirmation to the amendment, and is bound from when it advises it, or it may advise the amendment without confirming it, telling the issuing bank and the beneficiary without delay.
• The beneficiary keeps the old terms until it accepts. The original credit (or the credit as earlier amended) stays in force for the beneficiary until it communicates acceptance. If it gives no notice but then presents documents that comply with the credit and the unaccepted amendment, that presentation is treated as acceptance; documents that comply only with the old terms are treated as rejection.
• No partial acceptance. Accepting part of an amendment is not allowed and counts as rejection of the whole amendment.
• No silent deadlines. A clause in an amendment saying it takes effect unless the beneficiary rejects it within a set time is disregarded.
• Same advising route. Under Article 9, a bank that used an advising bank for the credit must use the same bank to advise any amendment, so the beneficiary can trust that amendments reach it the way the credit did.

Most amendments are practical: a vessel is delayed, so the shipment and expiry dates move; prices rise, so the amount increases; the buyer changes its Incoterms rule, so the insurance document requirement changes. Exporters also request amendments when a credit contains terms they cannot meet, such as a certificate from an authority that does not issue one. Reviewing a credit as soon as it is received, and asking for amendments then rather than at presentation, is standard advice, because a discrepancy found at presentation can no longer be fixed by amendment in time.

Amendments cost money and time. The issuing bank charges an amendment fee, the advising and confirming banks charge their own, and an increase in amount or extension of expiry also adds to the commission on the issuing bank's exposure. An increase may require fresh credit approval or more collateral from the applicant. The SWIFT standards for documentary credits have been revised to carry the full amended text in structured fields, which helps banks track the current terms.

Under a transferable letter of credit, the first beneficiary must state when requesting transfer whether amendments may be advised to the second beneficiary, and each second beneficiary may accept or reject them independently. In a revolving letter of credit, a long life makes amendments more likely, because terms set at the start may not suit later shipments. Changes to reimbursement terms require the issuing bank to send a matching amendment to the reimbursing bank (an MT747 under a reimbursement authorization).

An amendment is different from a waiver of discrepancies. An amendment changes the credit before presentation, with the beneficiary's consent; a waiver is the applicant's decision, after presentation, to accept non-compliant documents, which gives the beneficiary no bank undertaking. Banks also screen amendments that change parties, ports or goods against sanctions lists, since such changes are a known route for trade-based money laundering.

• International Chamber of Commerce
• SWIFT