Soft Clause in L/C

A soft clause in an L/C refers to a clause that grants the applicant or issuing bank unilateral control over payment, putting the beneficiary (exporter) in a passive position. Common forms include: requiring the beneficiary to submit an inspection certificate issued by the applicant, the applicant designating the shipping company or vessel name, the L/C not taking effect until the applicant notifies, payment subject to the applicant's confirmation of sample quality, etc. It is often used in a buyer's market or when the buyer distrusts the seller, allowing the buyer to reduce risk, but the seller may face loss of both goods and payment. Note: Exporters should scrutinize the L/C strictly; if a soft clause is found, request amendment or deletion; if amendment is not possible, assess the buyer's credit and own performance capability. It is the opposite of a 'hard clause', which the beneficiary can control independently. A soft clause differs from 'L/C fraud': the former is a clause design issue, the latter is malicious deception. The difference is that a soft clause itself is not illegal but may be abused. Foreign trade practitioners should be vigilant against soft clauses to avoid refusal of payment due to inability to meet conditions.