Minimizing Discrepancies on Your Export Letter of Credit

Roland Satchell VP CDCS Jerry Glock VP CDCS

April 2010
Strictly Private and Confidential

Topics
DiscrepancyDefined Document examination Standard UCP 600 Article 14 TimelineArticle 16d Complying presentationArticle 15 UCP600 Rules relating to discrepancies Article 16 Most common discrepancies How to avoid discrepancies Available options to presenter when documents are deemed discrepant

Discrepancies
DiscrepancyDefined Documents are considered discrepant when they do not meet the terms and condition of the credit and are not in accordance with examination standards Standard for document examination Against the Letter of Credit and any amendments issued Against UCP Against standard banking practiceISBP ICC Pub 681 Against each otherThe consistency rule

UCP Article 14
A. A nominated bank acting on its nomination, confirming bank, if any and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation B. A nominated bank acting on its nomination, confirming bank, if any and the issuing bank shall each have a maximum of five banking days, following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last date of presentation C. A presentation including one or more original transport documents subject to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipments described in these rules, but in any event not later then the expiry date of this credit D. Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not to be identical to, but must not conflict with, data in that document, any other stipulated document or the credit E. In documents other than the commercial invoice, the description of the goods ,services or performance, if stated, may be in general terms not conflicting with their description in the credit F. If a credit requires presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the documents to be issued or its data content, banks will accept the document as presented if its contents appear to fulfill the function of the required document and otherwise complies with sub-article 14(d)

Article 14 (Contd)
G. A document presented but not required by the credit will be disregarded and may be returned to the presenter H. If a credit contains a condition without stipulating the document to indicate compliance with the conditions, banks will deem such condition as not stated and will disregard it I. A document may be dated prior to issuance date of the credit, but must not be dated later than its date of presentation J. When the address of the beneficiary and the applicant appear in any stipulated document they need not be the same as those stated in the creditor in any other stipulated document, but must be within the same country as the respective addresses mentioned in the credit. Contact details (telefax, telephone, email and the like) stated as part of the beneficiary and the applicants address will be disregarded. However, when the address and contact details of the applicant appear as part of the consignee or notify party details on a transport document subject to articles 19, 20, 21, 22, 23, 24 or 25, they must be stated as in the credit K. The shipper or consignor of the goods on any document to need not be the beneficiary of the credit L. A transport document may be issued by any party other then the carrier, owner, master or charterer provided that the transport document meets the requirement of articles 19, 20, 21, 22, 23 or 24 of these rules

Article 15
Complying Presentation A. When an issuing bank determines that a presentation is complying, it must honor B. When a confirming bank determines that a presentation is complying, it must honor or negotiate and forward the documents to the issuing bank C. When a nominated bank determines that a presentation is complying and honors or negotiates, it must forward the documents to the confirming bank or issuing bank

UCP Article 16
Discrepant Documents, Waiver and Notice A. When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank determines that a presentation does not comply, it may refuse to honor or negotiate B. When an issuing bank determines that a presentation does not comply, it may in its sole judgment approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b) C. When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honor or negotiate, it must give a single notice to that effect to the presenter

Article 16 (Contd)
The notice must state i. That the bank is refusing to honor or negotiate; and ii. Each discrepancy in respect of which the bank refuses to honor or negotiate; and iii. a. That the bank is holding the documents pending further instructions from the presenter; or b. That the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or c. That the bank is returning the documents; or d. That the bank is acting in accordance with instructions previously received from the presenter

Article 16 (Contd)
D. The notice required in sub-article 16 (c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation E. A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may, after providing notice required by sub-article 16 (c) (iii) (a) or (b), return the documents to the presenter at any time F. If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation G. When an issuing bank refuses to honor or a confirming bank refuses to honor or negotiate and has given notice to that effect in accordance with this article, it shall then be entitled to claim a refund, with interest, of any reimbursement made

DiscrepanciesMost Common Types

Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CategoryDescription Discrepancy on Invoice Discrepancy on Bill of lading Incomplete Presentation Discrepancy onAWB Discrepancy on Insurance document Discrepancy on Drafts Discrepancy due to Late presentation Discrepancy onFCR Discrepancy on Packing List Discrepancy on Cert of origin Partial Shipment Attempted But Not Permitted Discrepancy due to Late Shipment Discrepancy on Beneficiary Certificate Discrepancy due to L/C Expiry Discrepancy related to CCVO Discrepancy due to Overdrawn LCs Discrepancy on beneficiary Name Discrepancy on Analysis Certificate Discrepancies due to language used on the documents Discrepancy on Phytosanitary Certificate Discrepancy due to Incorrect L/C no Discrepancy on Weight Certificate Discrepancy on Inspection Certificate Discrepancy onCargo Receipt Discrepancy due to over shipment

Most Common Discrepancies

Invoice: Description of goods Tend to restate per L/C regardless of quantity being shipped INCO Terms not per requirements of the L/C. Indicates additional amounts not covered under Inco term stated within L/C Bill of Lading Signing capacity/identity of the carrier/agent: Bills of Lading omits to identify the capacity of the signer. Example: Bill of lading is signed, but they are not identifying the person who signed it. The Agent for the carrier or carrier itself Bill of Lading not endorsed Omits to indicate how many originals were issued Place of receipt different from port of loading 44A; Place of Taking in Charge/Dispatch from /Place of Receipt 44E; Port of Loading/Airport of Departure 44F; Port of Discharge/Airport of Destination 44B; Place of Final Destination/For Transportation to /Place of Delivery Per UCP500 (not specifically stated in UCP600, but the understanding carries over) If the bill of lading indicates a place of receipt or taking in charge different from the port of loading, the on board notation must also include the port of loading stipulated in the Credit and the name of the vessel on which the goods have been loaded, even if they have been loaded on the vessel named in the bill of lading. This provision also applies whenever loading on board the vessel is indicated by pre-printed wording on the bill of lading
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Most Common Discrepancies (Contd)

Incomplete PresentationCertain documents required by the Letter of Credit are missing. Example: This could include bills of lading where only 2/3 were presented and the L/C requires a full set which is all originals that have been issued as stated on the bill of lading itself Late PresentationLetter of Credit stipulates that documents must be presented within 21 days of shipment date. Documents were presented after the 21 days Transport document not dated Letter of Credit overdrawn. Documents presented for more than the amount Letter of Credit allows. This may also includes any allowances (5%,10%) Letter of Credit reference number incorrect. L/C requires that document indicate the reference number. In most cases, the reference number is missing a number or is transposed Insurance document omits the name of the vessel or is dated after the shipment date Partial Shipment made whereas Letter of Credit prohibits it Weight on Bill of Lading and Commercial invoice are inconsistent

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Options available to presenter

1) Hold Documents Awaiting Correction: bank will hold the documents and allow for presentation of corrected documents. Documents are still to be presented within the stipulated period

2) Return Documents for Correction: bank will return some or all of the documents and allow for presentation of corrected documents. Documents are still to be presented within the stipulated period

3) Forward Documents to Issuing Bank: documents are sent to the issuing bank requesting their approval to honor

4) Contact Issuing Bank via SWIFT for Approval: a message is sent to the issuing bank requesting their approval to honor

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Q&A

For any questions related to letters of credit such as payment status, discrepancies and for clarification of the terms of credit, please contact: Trade.csu@citi.com Tel:866-498-8670 Fax:813-649-8378

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