Discrepancies under a letter of credit: What if the bank rejects the documents?

A practical guide to discrepancy notices, document checks and correction options when an exporter is waiting for payment.

Delivery and documentary compliance are different

If the goods have arrived but payment has not, obtain the bank’s reasons first. Documentary examination under a credit is distinct from performance of the sale contract. Customer satisfaction alone does not establish that the conditions of the bank’s undertaking have been met.

Build a document-by-document comparison

Put the notice beside the operative credit and accepted amendments. Identify the document, wording and requirement involved in each objection. Preserve the presentation date, delivery record and time of the notice. Where UCP 600 applies, these records also matter to examination and refusal requirements.

For example, a shipment-date discrepancy may not be cured by reprinting an invoice. Correcting a document must never mean inventing an event or a date.

Is there time for a valid correction?

Check whether a legitimate correction can be completed before the applicable deadline. Who issued the document, how long will reissue take, where must it be presented and what is the final date? Courier transit, bank holidays and time zones can upset a last-day plan.

Appoint one person to maintain the document-version log. Multiple inconsistent copies circulating among the carrier, buyer and banks can create additional problems.

Does the buyer’s acceptance settle it?

The applicant’s waiver may be relevant, but it should not be treated as an automatic guarantee of payment by the bank. Obtain the relevant bank’s position and examine the presentation and credit terms. Negotiating with the buyer should not mean overlooking the separate banking issues.

Prepare the transaction file

Bring the credit, amendments, submitted documents, proof of presentation, discrepancy notice and correspondence. Add the sale contract and a simple timeline. This helps separate a correctable documentary issue from a refusal-procedure issue or a claim under the underlying sale.

Sources and further reading

The examples are hypothetical. The governing law, banking documents and contract terms need to be assessed for the particular transaction.

Related reading: Types of letters of credit