Letter of Credit Discrepancies

Reliable statistics are hard to come by, but it is estimated that 50% or more of all drawings presented against a documentary letter of credit contain discrepancies. A discrepancy is an irregularity (an error) in the documents presented to the issuing bank that causes the documents not to be in compliance to the terms of the letter of credit.  Creditors and in particular credit managers should know that the requirements set forth in the letter of credit cannot be waived or altered by the issuing bank without the express consent of the customer.

A Letter of Credit discrepancy can result in the creditor not receiving payment the L/C.  There are many possible discrepancies between the documentation requirements listed in the Letter of Credit or part of the UCP 600 and the actual documentation presented by the seller.  Some of the more common documentation discrepancies include:

• Drafts are presented after the Letter of Credit has expired,
• Invoice value exceeds the amount available under Letter of Credit, 
• Charges included in invoice are not authorized in the Letter of Credit,
• Amount of insurance coverage is inadequate, or the insurance coverage does not include risks required by Letter of Credit, 
• Insurance document is not endorsed and/or countersigned,
• The date of the insurance policy or certificate is later than date on the bill(s) of lading,
• Bills of lading are not clean - meaning they bear notations that call into question the condition of merchandise or its packaging,
• Bills of lading are not marked "on board" when required by the terms of the Letter of Credit,
• "On board" endorsement or changes on bills of lading are not signed by carrier or its agent or initiated by the party who signed the bills of lading,
• "On board" endorsement is not dated,
• Bills of lading are not endorsed,
• Bills of lading are made out "to order" (shipper's order, blank endorsed) where the terms contained in the Letter of Credit stipulates "straight" (direct to consignee) bills of lading or vice versa. [In some countries, "to order" bills of lading are prohibited and heavy penalties or additional duties are assessed for failure to ship on a "straight" bill of lading],
• Bills of lading do not indicate "freight prepaid" or "freight collect" if and when required in the terms of the Letter of Credit, 
• Bills of lading are marked "freight prepaid" and freight charges are not included on the invoice,
• Descriptions, marks and numbers of merchandise are not the same on all documents presented, or are not as required by the terms of the Letter of Credit, 
• Not all documents required by Letter of Credit are presented,
• Documents are "stale dated" that is, not presented within a reasonable time after issuance,
• Invoice does not specify shipment terms (C&F, CIF, FOB, etc.) as stated in the terms of the Letter of Credit,
• Invoice is not signed as the terms of the Letter of Credit requires,
• Documents presented do not confirm to UCP requirements.

Edited by Michael Zininberg & Michael Dennis.  Mr. Zininberg is a credit professional with several years of experience monitoring, managing and collecting from both domestic and international customers.  He can be reached by email at mzininberg@gmail.com