A Letter of Credit (LC) is a crucial financial instrument that facilitates international trade by providing a guarantee of payment. However, like any complex process, it can sometimes encounter issues. A Discrepancy in Letter of Credit refers to a situation where the documents presented by the seller do not precisely match the terms and conditions stipulated in the original Letter of Credit. This can lead to delays, complications, and even the refusal of payment, making it essential for all parties involved to understand and prevent these discrepancies.
What is a Discrepancy in Letter of Credit?
When a seller ships goods and presents the required documents to the bank for payment under a Letter of Credit, these documents are meticulously checked against the LC. A Discrepancy in Letter of Credit arises when there is even a minor difference between the information on the presented documents and the requirements outlined in the LC. These differences can range from simple clerical errors to more significant deviations. The importance of absolute accuracy in all documentation cannot be overstated, as even a small mistake can trigger a discrepancy.
- Types of Discrepancies:
- Documentary discrepancies (e.g., incorrect dates, missing signatures).
- Quantity or description mismatches.
- Value differences.
- Consequences of Discrepancy:
- The bank may refuse to pay the seller.
- Payment may be delayed until discrepancies are resolved.
- Additional fees and charges may be incurred.
- Resolving Discrepancies:
| Issue | Action |
|---|---|
| Minor errors | Bank may allow correction with applicant's consent. |
| Significant deviations | Requires amendment to the LC or waiver from the applicant. |
Discrepancy in Letter of Credit: Incorrect Invoice Amount
Subject: URGENT: Document Discrepancy - Invoice Amount Mismatch - LC Ref: XYZ12345
Dear [Buyer's Bank Name] Document Examination Department,
We are writing to inform you of a discrepancy found in the documents presented for Letter of Credit number XYZ12345, issued on behalf of our client, [Buyer's Name], for the shipment of [Product Name].
Upon examination, we have noted that the Commercial Invoice presented states an amount of USD 10,500.00, whereas the Letter of Credit specifies an invoice value of USD 10,000.00. This represents a discrepancy of USD 500.00.
We kindly request your guidance on how to proceed. We have contacted our client, [Buyer's Name], to inform them of this discrepancy and to seek their instructions, which may include an amendment to the Letter of Credit or a waiver of this discrepancy.
Please advise at your earliest convenience.
Sincerely,
[Your Bank Name]
[Your Name/Department]
Discrepancy in Letter of Credit: Mismatched Bill of Lading Date
Subject: Discrepancy Noted: Bill of Lading Date - LC Ref: ABC98765
Dear [Issuing Bank Name] Trade Finance Department,
This email concerns the presentation of documents under Letter of Credit ABC98765, advised to our customer, [Seller's Name].
We have identified a discrepancy in the Bill of Lading. The LC states that the shipment date must be on or after [Date], but the Bill of Lading presented shows a shipment date of [Date Before Required Date]. This discrepancy is that the Bill of Lading is dated prior to the permitted shipment date in the LC.
We have notified our client, [Seller's Name], and are awaiting their instructions. We are also in communication with the applicant, [Buyer's Name], to inform them of this issue and obtain their confirmation on how to proceed.
We await your prompt response.
Best regards,
[Your Bank Name]
[Your Name/Department]
Discrepancy in Letter of Credit: Incorrect Beneficiary Name
Subject: Urgent: Discrepancy - Beneficiary Name on Documents - LC Ref: DEF45678
To: [Issuing Bank Name] Document Controllers,
We are writing to bring to your attention a discrepancy in the documents received under Letter of Credit DEF45678, pertaining to a transaction with [Seller's Company Name].
Our review of the Commercial Invoice and Packing List indicates that the beneficiary is listed as "[Incorrect Beneficiary Name]". However, the Letter of Credit clearly specifies the beneficiary as "[Correct Beneficiary Name]". This is a significant discrepancy.
We have advised our correspondent bank of this discrepancy and are awaiting instructions from the applicant on whether they are willing to accept these documents with the incorrect beneficiary name, or if an amendment to the LC is required.
Please let us know your preferred course of action.
Sincerely,
[Your Bank Name]
[Your Name/Department]
Discrepancy in Letter of Credit: Quantity Mismatch in Goods
Subject: Discrepancy Alert: Goods Quantity - LC Ref: GHI78901
Dear Sir/Madam,
We are examining documents submitted under Letter of Credit GHI78901. We have identified a discrepancy concerning the quantity of goods shipped.
The Letter of Credit authorizes the shipment of 1,000 units of [Product Name]. However, the Packing List and Bill of Lading indicate that only 950 units have been shipped. This presents a quantity discrepancy of 50 units.
We have informed our client, [Seller's Name], about this shortfall and are awaiting their response. We are also coordinating with the applicant, [Buyer's Name], to ascertain their position on this matter.
Your guidance would be appreciated.
Regards,
[Your Bank Name]
[Your Name/Department]
Discrepancy in Letter of Credit: Missing Required Document
Subject: Discrepancy in Letter of Credit: Missing Certificate of Origin - LC Ref: JKL01234
To: [Issuing Bank Name] Compliance Department,
We are reviewing the documents presented for Letter of Credit JKL01234, issued for [Buyer's Name].
We have found that the Letter of Credit explicitly requires a "Certificate of Origin" to be presented. However, this document is absent from the submission provided by the beneficiary's bank.
This is a critical discrepancy as the Certificate of Origin is a mandatory document as per the LC terms. We have informed the beneficiary's bank of this omission and are awaiting their advice on how they intend to rectify this situation. We have also notified our applicant.
Kindly advise on any specific procedures we should follow.
Thank you,
[Your Bank Name]
[Your Name/Department]
Discrepancy in Letter of Credit: Description of Goods Not Matching
Subject: Document Discrepancy: Goods Description Mismatch - LC Ref: MNO56789
Dear [Issuing Bank Name] Examination Team,
This communication pertains to the documents presented under Letter of Credit MNO56789, for the transaction involving [Seller's Company Name].
Our initial assessment has revealed a discrepancy in the description of the goods. The Letter of Credit specifies "High-Quality Cotton Fabric," while the Commercial Invoice describes the goods as "Standard Grade Cotton Material." Although similar, these descriptions are not identical and therefore constitute a discrepancy.
We are currently seeking clarification from the applicant, [Buyer's Name], regarding their willingness to accept this variation. The beneficiary's bank has also been informed.
We await your instructions.
Sincerely,
[Your Bank Name]
[Your Name/Department]
Discrepancy in Letter of Credit: Incorrect Currency Mentioned
Subject: Discrepancy in Letter of Credit: Currency Error - LC Ref: PQR90123
To: [Issuing Bank Name] Trade Operations,
We are writing to report a discrepancy identified in the documents submitted under Letter of Credit PQR90123.
The Letter of Credit clearly states that all payments and values are to be denominated in United States Dollars (USD). However, the Commercial Invoice presented lists the total amount in Euros (EUR).
This difference in currency is a direct discrepancy with the LC terms. We have contacted both the applicant and the beneficiary's bank to highlight this issue and ascertain how it can be resolved, whether through an amendment or a waiver.
Your advice on the next steps would be highly valued.
Regards,
[Your Bank Name]
[Your Name/Department]
Discrepancy in Letter of Credit: Draft Not Complying with LC Terms
Subject: Discrepancy: Draft Terms - LC Ref: STU45678
Dear Sir/Madam,
We are examining the documents under Letter of Credit STU45678 and have encountered a discrepancy concerning the draft.
The Letter of Credit stipulates that the draft should be drawn at [Tenor, e.g., 60 days sight]. However, the draft presented to us is drawn at [Different Tenor, e.g., 30 days sight]. This mismatch in the tenor of the draft is a significant discrepancy.
We have notified the beneficiary and their presenting bank of this issue and are awaiting their proposed solution. We are also keeping the applicant informed of the situation.
Please guide us on the necessary actions.
Thank you,
[Your Bank Name]
[Your Name/Department]
In conclusion, a Discrepancy in Letter of Credit, while a common occurrence, can introduce significant hurdles in trade finance. Understanding the various reasons for discrepancies and the potential consequences is vital for exporters and importers alike. By meticulously reviewing all documentation and ensuring strict adherence to the terms of the Letter of Credit, parties can significantly reduce the likelihood of encountering these issues, thereby ensuring smoother and more timely transactions.