Common Defects in Documentation

About half of all drawings presented contain discrepancies. A discrepancy is an irregularity in the documents that causes them to be in non-compliance to the letter of credit. Requirements set forth in the letter of credit cannot be waived or altered by the issuing bank without the express consent of the customer. The beneficiary should prepare and examine all documents carefully before presentation to the paying bank to avoid any delay in receipt of payment. Commonly found discrepancies between the letter of credit and supporting documents include:

Letter of Credit has expired prior to presentation of draft.

Bill of Lading evidences delivery prior to or after the date range stated in the credit.

Stale dated documents.

Changes included in the invoice not authorized in the credit.

Inconsistent description of goods.

Insurance document errors.

Invoice amount not equal to draft amount.

Ports of loading and destination not as specified in the credit.

Description of merchandise is not as stated in credit.

A document required by the credit is not presented.

Documents are inconsistent as to general information such as volume, quality, etc.

Names of documents not exact as described in the credit. Beneficiary information must be exact.

Invoice or statement is not signed as stipulated in the letter of credit.

When a discrepancy is detected by the negotiating bank, a correction to the document may be allowed if it can be done quickly while remaining in the control of the bank. If time is not a factor, the exporter should request that the negotiating bank return the documents for corrections.

If there is not enough time to make corrections, the exporter should request that the negotiating bank send the documents to the issuing bank on an approval basis or notify the issuing bank by wire, outline the discrepancies, and request authority to pay. Payment cannot be made until all parties have agreed to jointly waive the discrepancy.

Tips for Exporters

Communicate with your customers in detail before they apply for letters of credit.

Consider whether a confirmed letter of credit is needed.

Ask for a copy of the application to be fax to you, so you can check for terms or conditions that may cause you problems in compliance.

Upon first advice of the letter of credit, check that all its terms and conditions can be complied with within the prescribed time limits.

Many presentations of documents run into problems with time-limits. You must be aware of at least three time constraints - the expiration date of the credit, the latest shipping date and the maximum time allowed between dispatch and presentation.

If the letter of credit calls for documents supplied by third parties, make reasonable allowance for the time this may take to complete.

After dispatch of the goods, check all the documents both against the terms of the credit and against each other for internal consistency.

Date: 2016-01-14; view: 1377