Letter of Credit Discrepancies: Common Errors and Fixes

Letter of credit discrepancies: the most frequent ones with real examples, what UCP 600 and ISBP 821 say, what a refusal means, and a checklist to avoid them.

A letter of credit pays only against a complying presentation. Everything else is a discrepancy, and a discrepancy changes the nature of the deal: the bank's undertaking falls away, and your payment depends once again on the buyer, who is now free to accept the documents, refuse them, or ask for a discount before accepting. Bankers commonly estimate that well over half of first presentations under letters of credit contain at least one discrepancy, which is why this topic deserves a lesson of its own.

This lesson explains what counts as a discrepancy under UCP 600 and ISBP 821, and what does not. You will see the most frequent discrepancies document by document, with real typical cases, what the bank must do when it refuses, the options open to you afterwards, and a pre-presentation checklist that prevents most problems.

If you have read letters of credit explained, you know the bank pays on documents alone. Here you learn to make those documents unrefusable.

What exactly is a discrepancy?

A presentation complies when the documents meet the terms of the credit, the applicable articles of UCP 600 and international standard banking practice. Since 2023 that practice is set out in ISBP 821, the ICC's guide to examining documents, which replaced ISBP 745. A discrepancy is any failure to meet one of those three references.

Compliance is strict but not mechanical. Under UCP 600 article 14(d), data in a document, read in context with the credit, the document itself and international standard banking practice, need not be identical to data in that document, any other stipulated document or the credit, but must not conflict with it.

What is not a discrepancy

Knowing what banks may not refuse is as useful as knowing what they can:

• Different addresses in the same country: the beneficiary's and applicant's addresses need not match the credit, as long as they are in the same country; contact details given as part of an address are disregarded (art. 14(j)).
• General description of goods in documents other than the commercial invoice, as long as it does not conflict with the credit (art. 14(e)).
• Documents dated before the credit: allowed, but never later than the date of presentation (art. 14(i)).
• An unsigned commercial invoice: the invoice need not be signed unless the credit requires it (art. 18).
• A shipper other than the beneficiary on a transport document (art. 14(k)).
• Non-documentary conditions: a condition with no document to show compliance is disregarded (art. 14(h)).
• Obvious typing errors that do not change the meaning of a word or sentence, under ISBP; "machnery" for "machinery" is not a discrepancy, but a wrong model number is.

The most frequent discrepancies, document by document

What does the bank do when it finds a discrepancy?

UCP 600 article 16 sets a strict procedure:

1. The bank may refuse to honour or negotiate. The issuing bank may, at its own discretion, approach the applicant for a waiver, but this does not extend the five banking days.
2. If it refuses, it must give a single notice to the presenter, by telecommunication or other expeditious means, no later than the close of the fifth banking day following the day of presentation.
3. The notice must state that the bank is refusing, list each discrepancy, and say whether it is holding the documents pending further instructions, holding them until it receives a waiver from the applicant, returning them, or acting on instructions previously received.
4. A bank that fails to follow this procedure is precluded from claiming that the documents do not comply.

The single-notice rule protects you: a bank cannot raise one discrepancy on day 2 and another on day 5. Check every refusal notice for its timing and completeness.

What are your options after a refusal?

• Correct and re-present: if the credit is still valid and the presentation period has not run out, replace or correct the documents and present again.
• Seek a waiver: contact the buyer to ask it to instruct its bank to accept the documents. Most buyers waive minor discrepancies on goods they want, but a buyer facing a falling market may not.
• Payment under reserve or against indemnity: a nominated bank may pay you despite the discrepancy, keeping the right to recover the money if the issuing bank refuses. You are paid, but not finally.
• Send the documents on approval: the credit then works like a documentary collection; you are paid only if the buyer accepts.

Worked example: steel pipes to Abidjan

An Algerian manufacturer ships 52 tonnes of steel pipes to a contractor in Abidjan under a sight credit for USD 210,000, confirmed by its bank. On examination, the confirming bank finds three discrepancies:

1. the invoice describes "spiral welded steel pipes" while the credit says "steel pipes API 5L, 52 tonnes", and the invoice does not mention API 5L;
2. the packing list shows 52,300 kg gross, the bill of lading 52,030 kg gross;
3. the certificate of origin names a consignee different from the one in the credit.

Because the documents do not comply, the confirming bank is not bound to pay and forwards them to the issuing bank on an approval basis. The buyer waives the discrepancies six days later. The exporter is paid 12 days later than planned, with a discrepancy fee of USD 100 deducted. At a financing cost of 7% a year, the delay costs about USD 210,000 x 7% x 12/360 = USD 490: about USD 590 in all, for three errors that a careful check would have caught. And the buyer could have refused.

The pre-presentation checklist

• Credit number, amount, currency and expiry are correct on every document that mentions them.
• The commercial invoice is issued by the beneficiary, to the applicant, in the credit's currency, with the goods described exactly as in the credit.
• Quantities, weights, marks and container numbers are identical across invoice, packing list, bill of lading and certificates.
• The transport document, usually the bill of lading, is clean, shows the on-board date and vessel, the ports in the credit, the consignee and notify party as required, and all originals are present and endorsed when needed.
• The shipment date is on or before the latest shipment date; the presentation date is within 21 days of shipment, or the stated period, and before expiry.
• Insurance, if required, is at least 110%, in the credit's currency, covering the risks required, effective no later than shipment.
• Each certificate is issued by the body named in the credit and contains the data required.
• Drafts are drawn on the right bank, for the right amount and tenor, signed.
• The number of originals and copies matches the credit.

Common mistakes

• Preparing each document separately, from different files, by different people.
• Copying the goods description from the contract rather than from the credit.
• Waiting for the original bills of lading from the forwarder until day 19 of the 21-day period.
• Accepting a credit that requires a document only the buyer can issue, such as a certificate of acceptance signed by the applicant.
• Ignoring the document checklist for the destination: a missing certificate is a discrepancy and a customs problem.
• Assuming the buyer will "always waive": it waives only while it still wants the goods at that price.