For a Florida exporter, a letter of credit payment refused by the bank is a serious problem, but it doesn’t always end the sale. A letter of credit is a bank’s promise to pay the seller when the seller presents the right documents. When that bank refuses, two separate questions come up. Did the bank have to pay under the credit? And did the foreign buyer break the sales contract?
What a Letter of Credit Is and Whether Your Sale Needs One
A letter of credit is a payment method in which a bank agrees to pay the seller once the seller presents documents that match the credit’s terms. Whether a particular export sale uses a letter of credit depends on the terms the buyer and seller agree to. The buyer and seller choose it in their sales contract. Chapter 675 of the Florida Statutes covers letters of credit under Florida’s version of the Uniform Commercial Code.
The most important point is this. The agreed payment terms and the wording of the credit set what the exporter can expect. The exporter’s view of what the buyer owes does not. A seller who ships without reading the credit closely may find the bank pays only on terms the seller never checked. Read the paper before you ship.
If a bank has refused payment on your export shipment, you may need to decide whether to pursue the buyer, the bank, or both. Reach out to Ayala Law PA to talk through your options. Talk it through with our team — we can walk you through how a situation like yours is usually handled and what your options are.
How an Export Letter of Credit Works, Step by Step
The usual sequence involves several banks. The buyer asks its bank, the issuing bank, to open the credit in favor of the seller. The issuing bank sends the credit to a bank in the seller’s country, the advising bank, which passes it to the exporter. Sometimes a confirming bank adds its own promise to pay. That promise matters most when the exporter has less comfort about the buyer’s bank.
After shipping, the seller presents the required documents to the bank named in the credit. The bank examines them. Payment under a letter of credit depends on the terms of the credit and the documents presented. If they don’t, the bank refuses payment and sends a notice saying why.
How an Irrevocable Letter of Credit Works
Whether a letter of credit can be changed or cancelled depends on its terms, including whether it is irrevocable. Whether a confirming bank is involved depends on how the credit is structured. That is why an irrevocable credit gives the seller a stronger payment promise than a revocable one.
Check the credit’s type before you ship. The credit text should say it is irrevocable. Requested changes, such as a later shipment date or a corrected description, may require a formal amendment to the credit. Get it in writing, and confirm the bank accepted it, before the presentation deadline.
The Documents the Bank Checks and What Must Match
Most export credits ask for a commercial invoice, a transport document such as a bill of lading or air waybill, a packing list, and an insurance certificate. Some also require a certificate of origin or an inspection certificate. The credit lists the exact set. The bank checks only what the credit names.
The bank compares each document to the credit and to the other documents. A detail that reads one way on the invoice and another way on the bill of lading can be enough for a refusal. Your best protection is a line-by-line check. Compare each credit condition with the document that should prove it. Watch dates, quantities, names, addresses, and the description of goods.
Discrepancies That Lead Banks to Refuse Payment
A discrepancy is a mismatch between the documents and the credit, or between the documents themselves. Common examples include documents presented after the deadline and a shipment made after the latest shipment date. A goods description that differs across papers is another. Mismatched names or addresses and missing signatures also come up often.
Read the refusal notice closely. It should list the discrepancies the bank relies on. A discrepancy does not automatically mean the buyer owes nothing under the sales contract. The cause and timing of the problem matter. So does how the buyer acted after receiving the documents.
Why the Sales Contract With the Buyer Is a Separate Question
The bank’s refusal decides whether the bank pays under the credit. It does not, by itself, decide whether the foreign buyer broke the sales contract. The sales contract, the purchase order, the delivery terms, and any governing-law or dispute clause set your rights against the buyer. Lay the sales contract and the credit side by side. Map which obligation each document imposes.
Florida law gives sellers a remedy for unpaid prices. Under Fla. Stat. § 672.709, a seller may recover the price when the buyer fails to pay as it becomes due. This covers goods the buyer accepted, conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer, and goods identified to the contract that the seller cannot resell at a reasonable price after reasonable effort, or where the circumstances reasonably indicate that such effort will be unavailing. After the buyer wrongfully rejects or revokes acceptance, fails to make a payment due, or repudiates, the seller who is not entitled to the price shall still be awarded damages for nonacceptance.
The parties can also choose Florida law. Under Fla. Stat. § 685.101, parties to a contract, agreement, or undertaking involving in the aggregate not less than $250,000 may, to the extent permitted under the United States Constitution, agree that Florida law governs it.
Not sure what your next step is?
Talk it through with our team — we can walk you through how a situation like yours is usually handled and what your options are.
Types of Claims That Can Follow a Refused Letter of Credit
The first type is a claim against the buyer for breach of the sales contract. This may cover the unpaid price or damages for non-payment. If the contract names Florida courts or arbitration, that choice shapes the case. A claim can’t be dressed up as a tort to get around the contract. Under Frutafino, S.A.S. v. Dole Chile, S.A., a tort claim must be independent of the breach of contract. A fraud claim that only restates unpaid invoices may be barred.
The second type is a claim against the issuing or confirming bank for wrongful dishonor. The outcome of that kind of claim depends on the facts, the terms of the credit, and the governing law. Courts take those claims up only in fact-heavy cases.
Deadlines matter. Fla. Stat. § 95.11 sets the limitations periods. Section 95.11 also names, as its own category, an action to enforce rights under chapter 675, the Uniform Commercial Code provisions on letters of credit. Under Fla. Stat. § 95.03, a contract clause that sets a shorter time to sue than the statute allows is void.
Practical Steps and Options for a Florida Exporter After a Refusal
Start with records. Get the written refusal notice. Keep the credit, the sales contract, shipping and presentation records, and all messages with the buyer and both banks. Write down every deadline in the credit and the contract, including any time limit for responding to a discrepancy notice.
Then choose a path. Options include negotiating with the buyer, asking for a waiver or amendment, pursuing a claim under the sales contract, or pursuing a claim against a bank. The right path depends on the facts.
Arbitration deserves a close look. A written agreement to arbitrate is generally enforceable under Fla. Stat. § 682.02, and under 9 U.S.C. § 2 when it is a written provision in any maritime transaction or a contract evidencing a transaction involving commerce. If an award is issued, a motion to vacate under Fla. Stat. § 682.13 generally must be filed within 90 days after notice of the award. Under Fla. Stat. § 682.13, a motion to vacate an arbitration award must be filed within 90 days after the movant receives notice of the award, or of a modified or corrected award, unless the movant alleges that the award was procured by corruption, fraud, or other undue means, in which case the motion must be made within 90 days after the ground is known or by the exercise of reasonable care would have been known by the movant.
Where a suit can go is also a question.
How Ayala Law PA Handles Commercial and International Trade Disputes
Eduardo A. Maura is the responsible lawyer for this page. Ayala Law PA’s office is located at 1646 W Snow Ave, Tampa, Florida. The firm represents businesses across Florida, including in Hillsborough County and the Tampa Bay area, in Florida courts and arbitration.
The firm’s lawyers focus on business litigation, commercial litigation, contract disputes, and international trade litigation in Florida courts and arbitration. This page may be referred to another lawyer or firm if a matter falls outside the firm’s practice or location.
Frequently asked questions
Is a letter of credit required for an export sale?
The answer depends on the terms the buyer and seller agree to and the facts of the transaction. The buyer and seller choose it in their sales contract.
Can a bank refuse payment over small errors?
Yes, a bank can refuse when documents don’t match the credit. Small mismatches are a common reason, so check every detail.
What should a Florida exporter do first after a refusal?
Get the written refusal notice and preserve every record. Then compare the credit with the sales contract.
If a bank has refused your letter of credit payment and you’re weighing a claim against the buyer, the bank, or both, reach out through the case evaluation form or call (305) 570-2208.
