Preventing discrepancies

In order to prevent discrepancies from occurring when documents

are presented under the letter of credit, the exporter should take the
following steps as soon as the sale is concluded, but before the letter
of credit is opened.

1. Fax the buyer the terms of the letter of credit, which should
conform to the underlying contract of sale between the exporter and
importer.

2. After the buyer completes the letter of credit application, which it

will take to its bank, the exporter should also ask that the buyer fax a
copy of the letter of credit application to the exporter for its review. It
is much cheaper to change the terms of the proposed letter of credit
BEFORE it is issued; after it is issued the buyer has to pay additional
fees for amendments to change the terms of the letter of credit.

3. The exporter should make sure that the description of the

merchandise as it appears in the letter of credit is stated exactly the
same as on the invoice. The exporter must insure that the
accounting department (invoice), shipping department (packing list),
and the freight forwarder (bill of lading) are all aware of the
importance of describing the goods in conformance with the L/C.

4. The exporter should request at least a 14-day period in which to

present documents after the shipping date. If the L/C is silent on the
presentation period, the period of time that is allowed by Article 43.a
of the UCP is 21 days. Since late presentation is one of the most
common discrepancies, this simple request should alleviate the
possibility of a late presentation. Not only does a 14-day (or more)
period allow the exporter some extra time in putting together the
documents, it also allows for time to make the needed corrections to
discrepancies after the negotiating bank discovers discrepancies. A
21-day period is essential for transferable letters of credit since the
process of presenting documents by both the first and second
beneficiaries can be time consuming. (If the presentation period is 21
days, the exporter, of course, can present documents as soon as
practical in order to speed up the receipt of the L/C drawing.)

5. The exporter should discuss the INCO terms in the L/C with its
freight forwarder to insure that the proper shipping documents can
be provided with the shipment along with the required signatures if
necessary.

Common discrepancies

In order to assist the exporter in reviewing the documents when

compared to the terms of the letter of credit, we have put together
the following list of areas where typical discrepancies occur. The
exporter should have a detail oriented person within the company do
this examination and not rely exclusively on the bank or freight
forwarder to catch discrepancies. The exporter should make sure
that its staff dealing with L/C’s and its freight forwarder are familiar
with UCP 500.

Draft (Bill of Exchange)

Although drafts are similar to checks, they do not possess any

special characteristics such as micro encoding. The easiest method
of preparing drafts is to use your PC word processing program or
have your bank prepare it for you.

The draft is correctly drawn if:

1. The draft refers to the letter of credit; specifying issuing bank and
its L/C reference number, and is phrased according to the L/C terms.

2. Amount in words is identical with amount in figures.

3. The draft bears the appropriate endorsement if the payee is the

exporter.

4. The exporter signs the draft.

5. The tenor of the draft (at sight or some days after sight or bill of
lading date) conforms to the terms of the L/C.

6. Names and/or addresses of drawee and buyer agree with L/C

terms.

7. All names are correctly spelled.

8. The amount of the draft correlates to the invoice.

Invoice

1. The invoice indicates that it has been prepared by the exporter

and addressed to the buyer (account party under L/C). The names
of the buyer and seller on the invoice should correspond exactly to
the names and addresses of the account party and beneficiary in the
L/C.

2. The merchandise is described exactly as in the letter of credit; the

merchandise description must be consistent with the packing list and
bill of lading. All documents must be consistent with each other.

3. Purchase order numbers agree with the L/C if they are listed.

4. The invoice must list the prices and unit prices and various
charges/expenses if required by the L/C.

5. A sufficient number of invoices must be presented as required by

the L/C. (Read carefully, as sometimes the importer may request
multiple invoices marked as "ORIGINAL" and additional invoices
marked as "COPY".)

6. The invoice must indicate shipping terms, if required by the L/C.

7. If required by the L/C, all listed items (merchandise, freight,

insurance, and handling) must be allowed under the shipping terms.
For example, if the shipment were on a C&F basis, but the exporter
bills for insurance, then a discrepancy would occur.

8. The amount of ocean freight and/or insurance premium, if listed,

agrees with amounts shown on bill of lading and/or insurance
document and/or other documents.

9. If the L/C allows partial shipments, the portion of merchandise

shipped should not be invoiced out of proportion to the total amount
of the L/C.

10. The invoice must show all the clauses, certifications, and/or visa
requirements following the exact the terms of the L/C.

11. Shipping container descriptions (quantity, weight, and

measurement) on the invoice must correlate with the bill of lading,
packing list, and other appropriate documents if required.

Insurance Documents

1. If L/C requires an insurance certificate, a certificate should be

presented; if an insurance policy is required, then a policy should
accompany the presented documents. Under UCP Article 34.a the
insurance documents must appear on their face to be issued and
signed by insurance companies or underwriters or their agents.
Under UCP Article 34.b if the insurance document indicates that it
has been issued in more than one original, all the originals must be
presented unless otherwise authorized in the L/C.

2. It is not endorsed, to be in transferable form, provided the L/C

does not require the buyer, its bank, or other representative to be
the beneficiary of the insurance.

3. It is in the currency of the L/C unless the L/C states otherwise.

4. Under UCP Article 34.f. the insurance must cover the CIF or CIP
value plus 10 percent, if the value can be determined. (This article
should be read in detail to understand its implications.)

5. Merchandise description is consistent with the L/C. It lists the

marks and numbers of packages and quantities in accordance with
the other documents.

6. It is dated on or before the date of shipment or indicates that

coverage is established as of the date of shipment.
7. It covers merchandise upon the carrying vessel specified in the
B/L with shipment from the proper point of loading to the proper
destination.

8. It covers all risks specified in the L/C.

9. The amount of the insurance premium agrees with that appearing

on the invoice, if listed.

Transport Documents

The following articles in the UCP deal with transport documents. This
area is one where discrepancies commonly occur. The exporter
should carefully review these sections in consultation with its freight
forwarder to insure that transport document discrepancies do not
occur.

The exporter should make sure that its freight forwarder has a copy
of the L/C before the forwarder books the freight and obtains the
B/L. This should help eliminate obvious discrepancies concerning
markings on the B/L, ports of loading and discharge, shipping terms
and description of goods.

The transport document must be signed by the carrier (or in some

cases an agent of the carrier) and the signature must identify
(usually below it) the name of such carrier (or agent).

For additional information, we suggest that you get a copy of the

most recent UCP Articlces and review the following articles to
familiarize yourself about the types of transport documents and how
they differ. Those UCP Articles include:

Article 26 - Marine/Ocean Bills of Lading

Article 24 - Non-Negotiable Sea Waybill
Article 25 - Charter Party Bill of Lading
Article 26 - Multimodal Transport Document
Article 27 - Air Transport Document
Article 28 - Road, Rail or Inland Waterway Transport Documents
Article 29 - Courier and Post Receipts
Article 30 - Transport Documents issued by Freight Forwarders
Article 31 - “on Deck”, “Shipper’s Load & Count”, Name of Consignor
Article 32 - Clean Transport Documents
Article 33 - Freight Payable/Prepaid Transport Documents

Since we can not go into great detail on any one subject, only a few
items on Marine Bills have been listed below as examples that you
should be familiar with:

Marine Bill of Lading

1. A full set of original bills of lading signed by a named carrier, or

agent, must be presented, or otherwise accounted for in accordance
with the terms of the L/C. It is not acceptable for the B/L to be issued
by a Forwarding Agent, except acting as agent for a named carrier.

2. The bill of lading terms are not altered without authentication by

the issuer.

3. Bill of lading is not a Charter Party Bill of Lading unless

specifically authorized by the L/C.

4. The B/L shows a date of shipment on or before the latest

shipment date authorized in the L/C.

5. The B/L does not evidence transshipment, if prohibited by the L/C.

6. The merchandise description is consistent with the commercial

invoice. The marks and number of packages, weights, dimensions
and quantities are in accordance with other documents.

7. The B/L is “clean”; i.e. it does not contain clauses, which

expressly declare a defective condition of the goods.

8. The B/L should be consigned exactly as per the L/C terms and
endorsed properly, if required.

9. The “notify party” is specified on B/L exactly as per the L/C terms.

10. The B/L should show the loading and discharge ports as
specified in the L/C.

Again, we have only provided you with some examples of areas that
can cause possible problems with export documents that may slow-
down or prohibit you being paid in accordance with the terms of an
L/C. If you are going to be involved in either import or export of
merchandise on a regular basis, you should buy a copy of the UCP
500 and review it thoroughly.
Discrepancy
Inconsistent data
Absence of documents
Other
Late presentation
Carrier not named and
signing capacity
Incorrect data
Letter of credit expired
Incorrect goods description
Incorrect or absence of
endorsement
Late Shipment
Reason Responsibility
Different information Exporter
between the different
Documents.
Documents required by the Exporter
letter of credit are missing
Other documentation Exporter; any third party
reasons not specifically e.g. PSI company, carrier
noted
Documents presented later Exporter
than 21 days after
shipment
or after the number of days
stipulated in the letter of
credit
The name of the carrier on The transport provider
the airway bill is missing
or
not signed on behalf of the
carrier
Information on the set of Exporter
documents is not in
conformity with the letter
of
credit
Documents presented after Exporter
the letter of credit has
expired
The goods description on Exporter
the documents differs from
that on the letter of credit
The bills of lading, Exporter or insurance
insurance certificate or bill company
of exchange not endorsed
by the exporter or other
party
Goods shipped after the Exporter/carrier
last
date given for shipment