Discrepancies in Letters of Credit and Their Resolution

Category: LC Fundamentals Date: The concept of discrepancy refers to documents that do not meet the requirements of the letter of credit (L/C). This can be caused by minor errors, such as typos, or major errors, such as delayed delivery or incomplete documents. After a discrepancy occurs, the bank may consult the buyers opinion. If the buyer does not mind, the L/C will continue to be executed, but a penalty may be imposed. If the buyer does not accept it, the bank may refuse payment and return the documents to the seller. If the buyer accepts but requests a deduction, the buyer and seller must negotiate. When handling L/Cs, one must be extremely careful and thoroughly check all documents to ensure they meet the L/C requirements. Source: Shanghai Zhongshen International Trade Co., Ltd.

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L/CThe concept of discrepancies refers to documents not meeting the requirements of the letter of credit, which may arise from minor errors (e.g., typos) or major issues (e.g., late delivery or incomplete documentation). After discrepancies are identified, the bank may consult the buyer. If the buyer does not object, the letter of credit proceeds, though penalties may apply. If the buyer rejects, the bank may refuse payment and return the documents to the seller. If the buyer accepts but requests a deduction, negotiation between both parties is required. When handling letters of credit, meticulous review of all documents is essential to ensure compliance with the credits requirements.

1. The Meaning and Importance of Discrepancies:Possible Methods for Handling Discrepancies:

(1) If the buyer does not mind the discrepancy, the L/C will continue to be executed, but a penalty, known as a discrepancy fee, will be imposed.
(2) If the buyer does not accept the discrepancy, the bank will refuse payment and return the documents to the seller.
(4) If the buyer is willing to accept the discrepancy but requests a deduction, the buyer and seller must negotiate separately.
Handling Minor Discrepancies:

In theory, minor discrepancies, such as typos that do not affect the validity or nature of the documents, should not constitute grounds for refusal and may not even require consulting the buyers opinion.Warning Against Bad Practices:

Some international buyers may exploit the document-centric nature of L/Cs by setting trap clauses to create discrepancies or make the L/C revocable, which requires vigilance.Some international buyers may exploit the documentary supremacy of letters of credit to set trap clauses, create discrepancies, or make the credit revocable, which requires vigilance.

Suggested cautious approach:Before issuing a letter of credit (L/C), carefully review to ensure all document requirements are reasonable and feasible; when preparing goods and documents according to the L/C, maintain the principle of L/C supremacy, documents first.