UNDERSTANDING SERVICES LETTER OF CREDIT (LC)

QUESTION

Dear Sir,

Could you help me understand the concept of a Services Letter of Credit? I would also appreciate it if you could provide a draft of a Services LC.

Looking forward to your assistance.

Best regards,

Jawad

Askari Bank Pakistan

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ANSWER

Hi Jawad,

Although a Services Letter of Credit is not a distinct type of credit under UCP 600, the term is commonly used in practice to describe a documentary credit issued to support payment for services rendered rather than the delivery of goods.

When structuring this type of LC in MT700, several practical points should be considered.

1. Shipment-related fields

Because no physical shipment is involved, transport-related fields are normally omitted, including for example:

• 43P – Partial Shipments
• 43T – Transshipment
• 44A – Place of Taking in Charge
• 44E – Port of Loading
• 44F – Port of Discharge
• 44B – Place of Final Destination
• 44C – Latest Date of Shipment
• 44D – Shipment Period

2. Field 45A – Description of Goods and/or Services

This field should clearly describe the services covered by the credit, for example consulting services, engineering services, maintenance services, etc., usually with reference to the underlying contract.

3. Field 46A – Documents Required

Transport and goods-related documents (such as Bills of Lading, Certificates of Origin, Packing Lists, etc.) are generally not applicable.

Instead, the credit may require documents evidencing completion or acceptance of the services, such as:

• Service completion certificate
• Inspection certificate
• Acceptance certificate issued by the applicant
• Invoice referencing the service contract

These documents provide the basis on which the bank can determine compliance with the terms of the credit.

I hope this clarifies your query.

Best regards,
Mr. Old Man