TaxTMI 
TaxTMI 
TaxTMI 
In international trade, Letters of Credit (LCs) are commonly used to ensure secure payments. However, discrepancies in LC documents can cause serious delays, rejections, or even loss of payment. These discrepancies can be broadly categorized into three types:
1. Fundamental Discrepancies
These are major violations of the terms and conditions of the LC or the governing rules such as UCP 600. They usually result in the rejection of documents by the bank.
Examples:
- Shipment after the latest shipment date mentioned in the LC.
- Presentation of documents after the allowed number of days from shipment or after LC expiry.
- Invoice amount exceeding the credit limit.
- Goods not matching the description as per the LC.
- Shipment to a location other than specified in the LC.
Consequences:
- The bank may refuse to honour or negotiate the documents.
- Exporter may face payment delays or total loss of payment.
- May result in legal disputes if not resolved.
How to Avoid:
- Read and understand all terms in the LC thoroughly before proceeding.
- Coordinate with freight forwarders, suppliers, and other parties to comply strictly with LC timelines and specifications.
- Always perform a final review of the LC against your shipping and documentation plan.
2. Technical Discrepancies
These are documentary or procedural mistakes that may not violate the key commercial terms, but still make the documents non-compliant.
Examples:
- Mismatch in names or addresses between documents.
- Missing signatures, stamps, or dates.
- Incorrect document title or format, such as calling a document 'packing list' instead of 'packing note'.
- Required terms not mentioned, like “Freight Prepaid” when it's needed.
- Currency or number formatting issues.
Consequences:
- Banks may refuse to process the documents until corrected.
- Payment may be delayed, and exporters may incur costs to reissue documents.
- Additional charges may apply for resubmission or amendments.
How to Avoid:
- Cross-check every document for consistency.
- Use standard formats recommended under ISBP 745.
- Employ experienced staff or consultants for document preparation.
3. Common Discrepancies
These are frequently seen in day-to-day trade transactions and can be either fundamental or technical, depending on their severity.
Examples:
- Spelling errors or typos.
- Incomplete set of documents (e.g., not submitting all required copies of the Bill of Lading).
- Invoice not matching the LC amount.
- Presenting documents in a different language than what is required.
- Wrong or inconsistent dates across documents.
Consequences:
- Additional communication with banks and buyers is needed to rectify.
- Increased chances of document rejection.
- Delays in shipment release or payment settlement.
How to Avoid:
- Create a checklist for document preparation before submission.
- Ensure all staff involved in trade documentation are trained on LC practices.
- Perform an internal audit or seek professional review before presenting to the bank.
General Tips to Prevent LC Discrepancies
Carefully review the LC terms as soon as it's issued. Clarify anything that seems ambiguous.
Request amendments if any terms are impractical or incorrect before shipping.
Standardize document templates and ensure consistent data across all documents.
Consult your bank or a trade finance expert before dispatching goods.
Submit documents as early as possible to allow time for corrections if needed.
Proper planning, careful document preparation, and a thorough understanding of LC requirements can prevent most discrepancies. This ensures timely payment, avoids costly delays, and maintains good relationships between trading partners.
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Annexure – 1
Letter of Credit Discrepancy Checklist
Here’s a Letter of Credit Discrepancy Checklist in a clear, practical format you can use to prepare and review documents before submission:
✅ Letter of Credit Discrepancy Checklist
📌 A. Fundamental Discrepancies (Critical Issues)
Checkpoint | Yes/No | Notes |
Shipment made on or before the latest shipment date? | ☐ |
|
Documents presented within 21 days (or as per LC) from shipment date? | ☐ |
|
Documents submitted before LC expiry date? | ☐ |
|
Invoice amount does not exceed the credit amount? | ☐ |
|
Goods description matches exactly with the LC? | ☐ |
|
Shipment made to the correct port or place as per LC? | ☐ |
|
📌 B. Technical Discrepancies (Documentation/Format Issues)
Checkpoint | Yes/No | Notes |
All documents are signed, stamped, and dated where required? | ☐ |
|
Consistency of names, addresses, and details across all documents? | ☐ |
|
Document titles and formats match LC requirements (e.g., “Packing List”, not “Packing Note”)? | ☐ |
|
Incoterms (e.g., FOB, CIF) mentioned in invoice and other documents? | ☐ |
|
Any special terms like “Freight Prepaid” or “Insurance Covered” clearly stated if required? | ☐ |
|
All documents are in the language specified in the LC? | ☐ |
|
📌 C. Common Discrepancies (Frequent Mistakes)
Checkpoint | Yes/No | Notes |
No typographical or spelling errors in key names, places, or dates? | ☐ |
|
Complete set of original documents submitted (e.g., full set of B/Ls)? | ☐ |
|
Invoice amount, currency, and units match LC exactly? | ☐ |
|
Country of origin, port of loading/discharge mentioned as per LC? | ☐ |
|
No document is missing or submitted in excess of what is required? | ☐ |
|
📌 D. Final Checks Before Submission
Checkpoint | Yes/No | Notes |
Have you cross-checked the LC terms line by line? | ☐ |
|
Are any LC amendments required and obtained? | ☐ |
|
Has the issuing or advising bank reviewed draft documents if needed? | ☐ |
|
Are copies of all submitted documents retained for your records? | ☐ |
|
Is the presentation within business hours and to the correct bank branch? | ☐ |
|
✔️ Recommendation:
- Always consult the UCP 600 and ISBP 745 guidelines.
- Maintain a document control file for each LC.
- Use this checklist every time before submitting documents to avoid delays and rejections.
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