It is important to note that trade transactions are highly dependent on documentation. Hence it is extremely important that the exporter and his bank take documentation preparation very seriously and leave nothing to chance.
When export documents, drawn under L/C, are presented to the bank for negotiation, they are scrutinized carefully with reference to the terms and conditions of the L/C. The operation of Letter of Credit is governed by Uniform Customs & Practices for Documentary Credits (1993 revision) of the International Chamber of Commerce, Brochure number 600.
All the documents tendered must be strictly in accordance with the L/C terms. It is to be noted that the L/C issuing bank undertakes to honor its commitment only if the beneficiary submits the stipulated documents conforming to L/C terms.
Even the slightest deviation from those terms and conditions can give an excuse to the Issuing bank for refusing payment to the Negotiating Bank, which might have already paid the beneficiary. Some of the commonly observed discrepancies are:
(a) Late Negotiation – Submission of documents after expiry of L/C.
(b) Late shipment of goods.
(c) Late presentation of documents, even when the L/C is current. Sometimes, documents are not submitted within limitation period if specified in the L/C or within 21 days from date of shipment.
(d) Drawings in excess of L/C amount.
(e) Shipments made from or shipped to ports other than those stipulated in the L/C.
(f) Partial shipments/trans-shipments effected, not authorized by the L/C.
(g) Bill of Lading/AWB not properly signed, not properly dated or not properly stamped. Alterations, if any, not properly authenticated.
(h) Presentation of insufficient or incomplete set of B/L.
(i) Presentation of clause Bill of Lading/Received for Shipment Bill of Lading/Short form Bill of Lading/Charter party Bill of Lading, when not permitted in the L/C.
(j) Presentation of Bill of Lading in which ‘On Board’ notation not dated.
(k) Inconsistencies in the weight declared in the invoice and the weight list and other documents.
(l) Presentation of documents like Invoice, Packing List, Weight List, Insurance Certificate, Certificate of Origin, Inspection Certificate, Bill of Lading/AWB etc. that are inconsistent with each other.
(m) Inadequate insurance cover.
(n) Presentation of insurance documents, unsigned, undated or unstamped and drawn in a currency other than that of the L/C.
(o) Insurance document dated after the date of shipment.
(p) Description of goods, including charges in the invoice, not authorized by the L/C.
(q) Insufficient number of copies of various documents as called for in the L/C.
(r) Non-submission of certain documents as called for in the L/C.