Archive for October, 2007

What is an Irrevocable Letter of Credit?

Here’s an email I received the other day that goes to show just how valuable a letter of credit can be when negotiating with an overseas vendor. Scroll down to read the importer’s letter and to see my reply.

Email from the importer


I realize this request might be a little unorthodox, but I am hoping to find some advice from an importer…especially since I will be in the market for a new one due to some recent issues that have taken place with a us importer I was working with.

I was hoping I could get your advice on something. I realize you can’t offer legal advice and I wouldn’t ask you to.

But as an obvious expert, I am sure you can offer your 2 cents. It would be REALLY appreciated.

I had worked with an importer to import toy balls from China. I had ordered 9 inch balls and he sent me samples.

He had explained to me that the purpose of the pre-production samples was so that there was no confusion with the product that I would ultimately receive. The samples I approve would be the product I receive.

As it turns out – the samples they sent me were larger than the size I was asking for but I did not know it. They sent me samples and told me that they were samples of a 9 inch ball. (I now know that they were 10 inches)

The order finally got here for my 10,000 ball order and they are not the same as the pre-production sample balls that I approved. They are smaller. They are the actual 9 inch balls that I ordered but I did not know what they would look like, because they sent me samples of a larger ball and represented them as the 9 inch ball that I would receive.

The balls I received were smaller than the ones I approved and the importer is telling me there is nothing he can do.

He said I ordered 9 inch balls and I got 9 inch balls.

My argument is that I did not know that this is what the 9 inch ball looked like because the samples they sent , I was told were 9 inch balls and they blew up bigger than 9 inches and I liked the way they look so I approved them based on that fact and the 10,000 balls I ultimately received are different.

They are the factory’s actual 9 inch balls but are different than the samples I approved. I am not trying to be the bad guy, but I thought the samples I got would be the product I received…. And that is what I was told. The Importer I worked with is not willing to do anything to get this fixed.

The main issues are as follows:

1. I want the product of the sample I approved – I liked the samples better.

2. I used the samples to take photos of the product for my website and promo material and now would have to change it all to match the size of the balls I received.

3. I have used the pre production samples to promote the business while waiting for the shipment to arrive.

Do I have any recourse? Have you ever experienced this?

Any advice you can offer would be greatly appreciated.

Thanks for your time in reading this email.

Best Regards,

Name Withheld

My response

Hi Name Withheld,

You’re not going to like my answer.

The best and most common way to avoid your situation is through a financing tool called a letter of credit. Essentially, the buyer finds an international bank and gives their money plus a fee to the bank along with a conditional contract. Once all the conditions on the contract have been met (goods received in good order per specifications, etc.) the bank releases the funds to the seller.

Since you didn’t mention anything about a letter of credit, I’m assuming you don’t have one. In that case your best recourse would be some sort of legal action, but that might cost more than the balls.

Does that make sense?


Some important definitions

Irrevocable Letter of Credit
Letter of credit in which the specified payment is guaranteed by the bank if all terms and conditions are met by the drawee and which cannot be revoked without joint agreement of both the buyer and the seller.

Inspection Certificate
A certificate issued by an independent agent or firm attesting to the quality and/or quantity of the merchandise being shipped. Such a certificate is usually required in a letter of credit for commodity shipments.

Issuing Bank
Bank that opens a straight or negotiable letter of credit and assumes the obligation to pay the bank or beneficiary if the documents presented are in accordance with the terms of the letter of credit.