The process to handle discrepancies in documents for an unconfirmed letter of credit (LC) involves careful consideration and communication.
Understanding Discrepancies:
- A discrepancy occurs when the documents presented by the beneficiary (usually the seller) do not fully comply with the terms specified in the LC.
- The issuing bank examines the documents and may reject them if discrepancies are found.
Types of Discrepancies:
- Discrepancies can vary based on the type of document. Common discrepancies include:
- Port of Unloading: If the port of unloading differs from what’s specified in the LC, it may create obstacles and additional costs.
- Overdrawn LC: If the LC is overdrawn (e.g., more product shipped than expected), check if it’s acceptable before waiving the discrepancy.
- Missing Documents: Missing documents (e.g., insurance, inspection certificate) should be investigated to ensure goods’ safety and quality.
- Alleged Discrepancies: Sometimes different banks find discrepancies in the same set of documents, leading to confusion.
Consult Relevant Parties:
- Before waiving any discrepancies, consult with relevant parties:
- Customs Broker: If the port of unloading differs, discuss potential obstacles and costs.
- Logistics/Distribution Team: Assess if any delay will impact goods’ final destination.
- Company Decision-Makers: For overdrawn LCs or missing documents, ensure approval before waiving discrepancies.
Authorized Personnel:
- The issuing bank should know who at the company is authorized to deal with discrepancies.
- Correctly contacting the relevant people is crucial for resolving discrepancies.
Article 14 of UCP 500:
Remember that handling discrepancies requires clear communication, attention to detail, and collaboration among all parties involved in the LC transaction. Always seek professional advice when necessary to ensure a smooth process.
Handling discrepancies in a confirmed letter of credit (LC) requires a systematic approach to ensure that the issues are resolved and the transaction can proceed smoothly.
Here’s a step-by-step guide on how to handle such discrepancies:
Identification of Discrepancies:
When the advising or confirming bank reviews the documents presented by the beneficiary, they must match the terms and conditions of the LC exactly. If there are any deviations, these are identified as discrepancies.
Notification:
The bank that identifies the discrepancies (usually the advising or confirming bank) will notify the beneficiary of the specific issues found in the documentation.
Beneficiary Review:
Upon receiving notification, the beneficiary should review the discrepancies and decide whether they can provide corrected documents or if they need to seek a waiver from the applicant (buyer).
Communication with Applicant:
If the discrepancies cannot be rectified, the beneficiary should communicate with the applicant to discuss the discrepancies and seek their agreement to waive them.
Applicant’s Decision:
The applicant will review the discrepancies and decide whether to accept the documents as presented, request corrections, or refuse the documents.
Waiver of Discrepancies:
If the applicant agrees to waive the discrepancies, they will instruct their bank (the issuing bank) to accept the documents and proceed with payment.
Amendment of LC:
In some cases, the LC may need to be amended to reflect the accepted discrepancies. This requires agreement from all parties involved.
Payment:
Once the discrepancies are waived or corrected documents are presented, the issuing bank will make payment as per the LC terms.
Legal Advice:
It is advisable to seek legal advice if there are significant discrepancies or if the parties cannot reach an agreement.
Record Keeping:
It’s important to handle discrepancies promptly and efficiently to avoid delays in payment and potential legal issues. The involvement of a confirming bank provides an additional layer of security and can facilitate the resolution process. Always consult with your bank or a legal expert when dealing with discrepancies in a confirmed LC.