Our company plans to import a batch of goods through an agent but is unclear about the letter of credit process. I'd like to ask, in agency import transactions, who should issue the letter of credit? Should it be the principal or the agent? Are there any special considerations to keep in mind? I hope someone knowledgeable can provide a detailed explanation. Thank you.
The company plans to arrange agency import of goods and is confused about whether the agency import letter of credit should be issued by the principal or the agent, along with relevant considerations. The best answer indicates that this is typically negotiated and specified in the agency agreement. Common scenarios include: the agent issuing the LC when signing import contracts in its own name, or the principal issuing the LC if it has good credit after mutual agreement, but clear delineation of rights/obligations and risk control measures are essential.
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Professional consultant answers
Emily LiuYears of service：10Customer Rating：5.0
Settlement and payment expertConsult
In agency import transactions, the party responsible for issuing the letter of credit is typically negotiated and determined in the agency agreement between the principal and the agent. There are generally two common scenarios:
First, the agent issues the letter of credit. The agent uses its own creditworthiness and banking relationships to obtain a credit line and applies to the bank in its own name to open the letter of credit. The advantage of this approach is better control over the flow of goods and funds, as the agent is directly responsible for all aspects of the import process. However, the agent bears significant risk—if the principal fails to fulfill payment obligations later, the agent must assume the payment responsibility.
Second, the principal issues the letter of credit. The principal communicates directly with the bank to arrange the letter of credit. In this case, the principal has stronger control over the letter of credit and can operate according to its own needs and preferences. However, the agent may worry about delays in issuance or non-compliant terms, which could affect the import process. In summary, both parties should clarify the issuing party based on the specific situation and cooperation model, and detail their respective rights and obligations in the agreement to mitigate potential risks.
William YangYears of service：5Customer Rating：5.0
International logistics consultantConsult
Most of the time, it depends on the strength and negotiation outcome of both parties. If the agent is strong and reputable, and can easily issue the letter of credit, it may be issued by the agent. If the principal has special requirements for the letter of credit and has the capability to issue it, the principal may also do so.
David LiYears of service：6Customer Rating：5.0
Senior customs declaration consultantConsult
It also depends on the agency contract. The contract will specify who is responsible for issuing the letter of credit, and the parties should follow the contract. If it’s not clearly agreed upon, disputes may arise later.
James LiuYears of service：10Customer Rating：5.0
Foreign trade tax refund consultantConsult
From a financial perspective, the party with sufficient funds and lower issuance costs may be more suitable to issue the letter of credit. For example, if the principal has strong financial resources and issuing the letter of credit has minimal impact on its capital, the principal may issue it.
Jennifer WangYears of service：4Customer Rating：5.0
Market development consultantConsult
If the agent has a long-term relationship with the supplier and can obtain more favorable terms for issuing the letter of credit, having the agent issue it may benefit the overall transaction.
Sarah ZhangYears of service：8Customer Rating：5.0
Document expertConsult
Sometimes, it also depends on banking relationships. The party with better banking connections, enabling faster and more convenient issuance, may issue the letter of credit to improve transaction efficiency.
Andrew HuangYears of service：7Customer Rating：5.0
Supply chain optimization expertConsult
From a risk perspective, if the principal is more willing to bear the risk of issuing the letter of credit and is familiar with its operation, it may issue the letter of credit itself. If the agent prefers to control the risk, it may also issue the letter of credit.
Michelle ChenYears of service：3Customer Rating：5.0
Business coordination consultantConsult
There are also cases where the agent initially issues the letter of credit, and once the principal’s funds are in place or certain conditions are met, the principal takes over the letter of credit matters.
Robert ChenYears of service：6Customer Rating：5.0
Customer service consultantConsult
For imports involving special products with strict letter of credit terms, the party more familiar with the relevant requirements may issue the letter of credit.
Joseph ZhouYears of service：10Customer Rating：5.0
Senior foreign trade managerConsult
In practice, both parties should communicate thoroughly and consider all factors to determine the most suitable issuing method.