Common Pitfalls to Avoid When Using LC , DLC, SBLC, Bank Guarantees
Letter of Credit & Bank Guarantee: A Risk Prevention Guide
1. Insufficient Due Diligence
When a documentary letter of credit (DLC) is used, there should be a due diligence process that includes checking the SWIFT codes, rating the bank based on information that has been confirmed, and reviewing the account performance history.
The Documentary Credit Letter of Credit (DLC) presents significant risks due to the hurried nature of document verification, which can lead to numerous discrepancies in the insurance certificate of coverage, shipping documents, and inspection reports.
The UK reported a loss of £113 million in 2000 as a result of LCs with inconsistent documentation. Few developing nations, which form a third of the world trade, have faced challenges to open LCs. Bank guarantee transactions should observe legal enforceability across different jurisdictions.
2. Poor Document Preparation

3. Timing and Expiry Issues
At the same time, ambiguity in the terms of performance or the obligations of the undertaking in the DLC / SBLC will lead to disputes, particularly to conditions of invocation that are not always adequately drafted.
Discrepancies in supporting documents such as bills of lading, certificates of origin, and inspection reports can be cited as non-compliance, resulting in payment holdups and rejection of claims.
4. Incorrect Issuance Amount

According to a joint report by the IMF and the Bankers’ Association for Trade and Finance, there has been an annual decline of more than 6% in trade finance flowing to developing countries, which was a steeper decline than that of trade volumes.
Local bankers and survey estimates indicate that this points to a market shortfall that could surpass $25 billion.
Risk Management
- Scrutiny: Thoroughly reconcile the issuance amount with the transaction terms to ensure its coherence.
- Stakeholder Communication: Confirm the amount to have a say in the beneficiary, issuer, and bank witness the event so as to eliminate misunderstanding.
Technology and Automation
- Software Solution Finance: Use automation to validate the amount in real time to reduce errors of human entry.
5. Technical Errors in Structure
Any errors in the construction of a Documentary Letter of credit (DLC), Standby letter of credit or a bank guarantee can lead to serious issues such as rejection of documents and non-compliance.
Therefore, it is essential to ensure clarity in all the terms, conditions, and obligations that may apply to the stated contract.
Moreover, other measures like cross-checking with legal, financial, and banking teams, as well as the use of automated systems for error detection, can reduce lapses in structural mistakes, increasing the chances of smooth transaction execution.
6. Security Vulnerabilities

DLCs include desired documents that must be presented to obtain payment and are exploited more than other financial instruments as far as frauds, cyberattacks, and unauthorized access are concerned due to the fact that the whole case involves many parties and digital platforms.
Pacific Corp- Your Trusted Partner in Trade and Finance
Our extensive network of industry contacts offers a wide range of services, including Letters of Credit (LCs), Standby Letters of Credit (SBLCs), Bank Guarantees, and Performance Guarantees.
This will ensure the right financial instruments are present for your international trading transactions.
Our expert team works closely with our clients to assist them in shortening the whole risk mitigation and trade cycle timeline. Whether you need financial consultation or assistance with a complex international trade project, Pacific Corp serves as your comprehensive partner.