In the complex world of international trade, letters of credit (LCs) serve as vital financial instruments, ensuring that payments are made once specific conditions are met. However, what happens when the documents presented under an LC don't quite match the agreed-upon terms? This is where a Discrepancy Letter of Credit comes into play, a situation that can cause delays and require careful attention. Understanding this aspect of LCs is crucial for smooth and successful transactions.
Understanding Discrepancy Letter of Credit
A Discrepancy Letter of Credit arises when the documents presented by the seller (the beneficiary) to the bank do not perfectly align with the terms and conditions stipulated in the original letter of credit. These discrepancies, no matter how small they may seem, can prevent the bank from processing the payment. The bank's role is to act as an impartial intermediary, and they are obligated to reject documents that show any deviation from the LC. The importance of adhering strictly to the LC terms cannot be overstated, as even minor errors can lead to significant complications.
When a discrepancy is identified, the presenting bank will typically notify the beneficiary and often the applicant (the buyer). The process then involves either the beneficiary correcting the documents and re-presenting them, or the applicant waiving the discrepancy and allowing the payment to proceed. The urgency of resolving these discrepancies depends on the terms of the LC and the overall transaction timeline. Delays can result in missed deadlines, increased costs, and strained business relationships.
Here's a breakdown of common types of discrepancies and how they are typically handled:
| Type of Discrepancy | Explanation |
|---|---|
| Documentary Errors | Incorrect dates, missing signatures, or information that doesn't match other documents. |
| Goods Description Mismatch | The description of the goods on the invoice or bill of lading differs from the LC. |
| Quantity or Value Errors | The quantity or value of the goods shipped is different from what is stated in the LC. |
| Presentation Period Expiration | Documents are presented after the stipulated time limit. |
Example of Discrepancy Letter of Credit: Minor Typo on Invoice
Subject: Urgent: Document Discrepancy Notification - LC No. [LC Number]
Dear [Beneficiary Name],
This letter is to inform you that documents presented under Letter of Credit No. [LC Number], dated [LC Date], have been found to contain a discrepancy. Our examination has revealed a minor typographical error on the commercial invoice (Invoice No. [Invoice Number]). The word "Manufactured" has been misspelled as "Manufactered".
While we understand this may be a minor oversight, the Uniform Customs and Practice for Documentary Credits (UCP) requires strict adherence to the terms of the LC. Therefore, we are unable to process payment at this time.
We kindly request that you rectify the commercial invoice and re-present it along with the other compliant documents as soon as possible. Please ensure all corrected documents are presented within the validity period of the LC and before the latest date for presentation.
Should you require further clarification or assistance, please do not hesitate to contact us.
Sincerely,
[Bank Name]
Example of Discrepancy Letter of Credit: Incorrect Expiry Date on Bill of Lading
Subject: Notice of Discrepancy - Bill of Lading dated incorrectly - LC Ref: [LC Number]
Dear [Beneficiary Name],
We are writing to advise you of a discrepancy identified in the documents submitted for Letter of Credit No. [LC Number]. Upon review of the Bill of Lading (BOL No. [BOL Number]), we have noted that the date of issuance is [Incorrect BOL Date], which conflicts with the requirement in the LC stating the Bill of Lading must be dated no later than [Correct Latest BOL Date].
This discrepancy requires attention before we can proceed with the remittance. We suggest you liaise with the shipping carrier to obtain an amended Bill of Lading with the correct issuance date, provided it still falls within the shipment period stipulated in the LC.
Please submit the corrected Bill of Lading along with a revised set of documents to our office at your earliest convenience. We are available to discuss this matter further should you have any questions.
Best regards,
[Bank Name]
Example of Discrepancy Letter of Credit: Missing Signature on Certificate of Origin
Subject: Discrepancy Alert: Missing Signature on Certificate of Origin - LC: [LC Number]
Dear [Beneficiary Name],
This communication serves as notification of a discrepancy found in the documentation presented under Letter of Credit No. [LC Number]. We have observed that the Certificate of Origin (Certificate No. [Certificate Number]) is missing the required authorized signature from the issuing chamber of commerce.
As per the terms of the LC, all submitted documents must be duly completed and signed. The absence of this signature constitutes a discrepancy. You will need to obtain the required signature from the relevant authority and resubmit the corrected Certificate of Origin.
Please ensure the re-submitted document is complete and compliant with all LC requirements. Prompt action will help avoid further delays in payment processing.
Sincerely,
[Bank Name]
Example of Discrepancy Letter of Credit: Goods Description Mismatch
Subject: Document Discrepancy - Goods Description Mismatch - LC Reference: [LC Number]
Dear [Beneficiary Name],
We are writing to inform you about a discrepancy identified in the documents submitted against Letter of Credit No. [LC Number]. The commercial invoice (Invoice No. [Invoice Number]) describes the goods as "[Description on Invoice]", whereas the Letter of Credit specifies the goods as "[Description in LC]".
This difference in the description of the goods is a material discrepancy that prevents us from honoring the draft at this time. To resolve this, you will need to provide a commercial invoice that accurately reflects the description of the goods as detailed in the Letter of Credit.
We advise you to contact the applicant to see if they are willing to issue an amendment to the LC to reflect the actual goods description, or to provide a waiver for this specific discrepancy. Alternatively, please re-issue the invoice correctly and resubmit the full document set.
Thank you for your prompt attention to this matter.
Regards,
[Bank Name]
Example of Discrepancy Letter of Credit: Quantity Discrepancy
Subject: Notice of Discrepancy - Quantity of Goods - LC Number: [LC Number]
Dear [Beneficiary Name],
This message is to inform you of a discrepancy noted in the documentation provided for Letter of Credit No. [LC Number]. Our review indicates that the quantity of goods stated on the packing list (Packing List No. [Packing List Number]) is [Quantity on Packing List] units, while the Letter of Credit authorizes a quantity of [Quantity in LC] units.
This discrepancy in the quantity of goods must be resolved before payment can be processed. You have a few options:
- Request an amendment to the Letter of Credit from the applicant to match the actual quantity shipped.
- If the applicant agrees, they can provide a written waiver confirming their acceptance of the discrepancy.
- Correct the packing list to reflect the quantity authorized by the LC, if feasible and accurate.
Sincerely,
[Bank Name]
Example of Discrepancy Letter of Credit: Presentation Period Exceeded
Subject: Discrepancy: Documents Presented After Latest Date for Presentation - LC: [LC Number]
Dear [Beneficiary Name],
We regret to inform you that the documents submitted under Letter of Credit No. [LC Number] were presented to us on [Date of Presentation], which is after the latest date for presentation stipulated in the LC, namely [Latest Date for Presentation].
As per the terms and conditions of the LC and UCP guidelines, documents must be presented within the specified timeframe. This constitutes a significant discrepancy, and we are unable to process this presentation at this juncture.
We recommend that you contact the applicant immediately to discuss potential options, such as issuing a waiver for this discrepancy or opening a new Letter of Credit. Please let us know if you require any further information from our end.
Regards,
[Bank Name]
Example of Discrepancy Letter of Credit: Insurance Certificate Incorrect
Subject: Discrepancy in Insurance Document - LC Ref: [LC Number]
Dear [Beneficiary Name],
This letter is to notify you of a discrepancy found in the insurance document (Policy No. [Policy Number]) presented under Letter of Credit No. [LC Number]. The insurance coverage provided does not meet the requirements specified in the LC. Specifically, the sum insured is [Sum Insured], whereas the LC requires a sum insured of at least [Required Sum Insured]. Additionally, the risks covered do not include [Missing Risk Coverage] as mandated.
To resolve this, please obtain a revised insurance certificate or policy that fully complies with all terms and conditions outlined in the Letter of Credit, including the correct insured amount and all stipulated risks. Upon receipt of the corrected insurance document, please resubmit it along with the other required documents.
Your prompt action in rectifying this discrepancy will facilitate the payment process.
Sincerely,
[Bank Name]
Example of Discrepancy Letter of Credit: Shipping Marks Mismatch
Subject: Discrepancy Alert: Shipping Marks on Bill of Lading - LC No. [LC Number]
Dear [Beneficiary Name],
We are writing to inform you of a discrepancy identified in the documents presented for Letter of Credit No. [LC Number]. The Bill of Lading (BOL No. [BOL Number]) shows the shipping marks as "[Marks on BOL]", however, the Letter of Credit specifies that the shipping marks should be "[Required Marks in LC]".
This mismatch in shipping marks is a discrepancy that needs to be addressed. You will need to either obtain an amended Bill of Lading that accurately reflects the required shipping marks as per the LC, or secure a waiver from the applicant if they agree to accept the current marks.
Please contact us to discuss the best way forward to resolve this issue and enable us to proceed with your payment.
Regards,
[Bank Name]
In conclusion, a Discrepancy Letter of Credit, while a point of concern, is a manageable aspect of international trade. By understanding the common causes of discrepancies and acting swiftly to rectify them, businesses can minimize delays and ensure that their transactions proceed as smoothly as possible. Clear communication between all parties involved – the seller, the buyer, and the banks – is paramount in navigating these situations and maintaining strong trade relationships.