Letter of Credit Discrepancies
Letter of Credit Discrepancies by Thomas H. Ward, MBA
Reading this article will make you a semi expert on the subject. For more information you can see my book Letters of Credit and Documentary Collections which can be found on line. Also see my other articles on Letters of Credit on Associated Content. This information is based on my 30 years of experience in international business operations.
It is normal to have some type of discrepancy show up after the advising bank reviews your documents. A discrepancy is an error or mistake made on any of the documents that may be submitted. It could be a typing error or a misspelling. The advising bank will review all your documents for any mistakes. Common Discrepancies are: a. The letter of credit has expired. b. The bill of lading shows the ship date is past the required ship date in the LC. c. Charges in the invoice do not match the LC amount. d. Description of the goods does not match the LC. e. Ports of loading are not as specified in the credit. f. The quantity or volume in the invoice or bill of lading does not match the LC. g. Company names in the documents do not match that in the LC. h. Not all the documents required by the LC have been submitted to the bank.
When you are advised of any discrepancies, you have two choices: authorize the advising bank to proceed and forward the documents as is to the issuing bank or have the documents returned to you for your correction. If there is enough time, returning the documents to you for correction is the best method. Keep in mind each discrepancy will cost you money. Common fees are anywhere from $20 per item to $100 per item. If the discrepancies are simple ones that do not affect the payment in any manner, then in most cases it is safe to authorize the bank to proceed and submit the documents to the issuing bank. Should you do this, then it is necessary to e-mail your customer with a copy of the discrepancies and ask for their approval to go ahead and proceed with documents submission. This way, your customer will tell their issuing bank to approve or waive the discrepancies so there will be no delay in payment.
It is very important to study the documents and compare it to the letter of credit. It is a good idea to have one person who is in charge of the paper transaction to help reduce discrepancies. They cost you time and money and could affect the payment from your customer. If there are any discrepancies you have not corrected, advise your customer right away by email and ask for them to accept the discrepancies. Obtain this acceptance in writing. Keep in mind that small discrepancies such as spelling errors are not important but will cost you money if sent. Discrepancies such as the wrong LC number or mistake in the dates used can have a serious effect on your transaction. Always try to meet the expiry dates and ship dates. If you cannot, then you need your customer to amend the letter of credit to allow you more time.
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