A soft clause in a letter of credit refers to a hidden clause set by the importer that makes the exporter's control over payment subject to the importer or a third party, thereby losing the bank credit guarantee of the letter of credit. Common forms include: requiring the importer to designate an inspector and issue an inspection certificate, confirming shipping samples, the importer notifying shipment, or stipulating conditions for effectiveness. Usage scenarios are mostly when the importer wants to control goods quality or delay payment; if the exporter accepts, it faces the risk of refusal to pay. Precautions: The exporter should identify soft clauses when examining the letter of credit and request modification or deletion; if modification is impossible, assess the importer's credit and insure export credit. It is opposite to 'hard clause', which is a clear, operable normal clause. A soft clause is different from 'discrepancy', as the former is a trap in the clause itself, while the latter is an operational error in documents. The difference also lies in that soft clauses often turn the letter of credit into 'revocable' or 'conditional' payment, weakening the bank's primary payment responsibility. Foreign trade practitioners should adhere to the principle of independence of the letter of credit and avoid accepting such clauses.
📝 Examples
1. We received a letter of credit stipulating that 'the beneficiary must obtain an inspection certificate issued by the inspection agency designated by the applicant before shipment, and a copy of this certificate must be submitted with the documents.' This soft clause makes our payment entirely dependent on the importer's cooperation, posing extremely high risks. (Note: The designated inspector is controlled by the importer, and the exporter cannot ensure timely certificate issuance.)
2. The letter of credit states that 'this credit is temporarily ineffective and will become effective upon notification by the applicant.' This soft clause renders the letter of credit virtually useless, and the exporter should not accept it. (Note: The conditions for effectiveness are unilaterally controlled by the importer, and the bank's payment responsibility is uncertain.)
💡 Foreign Trade Tips
Foreign trade terms are the foundation of international business communication
Trade practices may vary slightly by country; pay attention when using them
When using terms in contracts, specify the applicable version (e.g., Incoterms 2020)
For unfamiliar terms, use GlobalSync's multilingual email helper to confirm with your partner