Common discrepancies on invoice under Letter of credit

A letter of credit (L/C) is an irrevocable undertaking given by a bank whereby it undertakes to honour a presentation of documents submitted in accordance with the terms and conditions of the documentary credit and in compliance with UCP 600.. Essentially, it acts as a secure payment mechanism in international trade.

Key Steps in Presenting Documents under an L/C:

Shipment: The exporter ships the goods as per the L/C terms.
Document Preparation: The exporter prepares a set of shipping documents, including the commercial invoice, bill of lading, insurance certificate, and other necessary documents.
Document Presentation: The exporter presents these documents to their bank (the negotiating bank).
Bank Examination: The negotiating bank examines the documents to ensure they comply with the terms and conditions of the L/C.
Negotiation: If the documents are found to be in order, the negotiating bank negotiates the draft (if applicable) and advances funds to the exporter.
Document Transmission: The negotiating bank transmits the documents to the issuing bank (the importer's bank).
Payment: The issuing bank examines the documents and, if satisfied, releases payment to the importer.

Common Invoice Discrepancies:

Discrepancies in the commercial invoice are a frequent cause of delays and potential payment issues. Some common discrepancies include:

Invoice value exceeding the L/C amount: The total value on the invoice is higher than the maximum amount permitted by the L/C.
Omission of Incoterm or its source: The Incoterm (e.g., FOB, CIF) or its source (e.g., ICC Incoterms 2020) is missing.
Invoice not issued by the beneficiary: The invoice does not appear to have been issued by the exporter (the beneficiary named in the L/C).
Invoice not made out in the name of the applicant: The invoice is not addressed to the importer (the applicant of the L/C).
Amount differs from that of the draft: If a draft is required by the L/C, the invoice amount does not match the draft amount.
Description of goods or services does not correspond with the L/C description: The goods or services listed on the invoice differ from those specified in the L/C.
Quantity of goods does not match the L/C description: The quantity of goods on the invoice differs from the quantity stated in the L/C.
The invoice shows different shipment routings: The shipment route indicated on the invoice differs from the permitted route in the L/C.
The invoice does not contain a declaration as per L/C: The invoice lacks a specific declaration required by the L/C.
Invoice shows shipment of goods not required by L/C: The invoice includes goods that were not authorized for shipment under the L/C.
The invoice does not show discounts or deductions: The invoice fails to reflect any agreed-upon discounts or deductions.
Invoice is not signed when requested in the L/C: The invoice lacks the required signatures if specified in the L/C.
Invoice indicates over-shipment or short-shipment: The invoice shows that the quantity shipped exceeds or falls short of the quantity ordered.
Data on the invoice conflicts with other documents required by the L/C: The information on the invoice contradicts information on other documents (e.g., bill of lading, packing list).
The invoice states a different unit price: The unit price on the invoice differs from the agreed-upon price.

Conclusion:

To ensure smooth and timely payments under a letter of credit, it is crucial for exporters to meticulously review their commercial invoices to guarantee strict adherence to the L/C terms, ICC UCP600 guidelines, and standard international banking practices.

Note: This explanation provides a general overview. Specific L/C terms and conditions may vary, and it is essential to consult the actual L/C document for precise instructions.

Comments

The Principle of Independence in Demand Guarantees

Demand guarantees are a common tool used in international trade to provide assurance to the beneficiary that they will receive payment for goods or services rendered. These guarantees are often issued by banks and serve as a form of security for the beneficiary in the event that the applicant fails to fulfill their obligations. One of the key principles governing demand guarantees is the principle of independence. This principle dictates that a demand guarantee is separate and independent from the underlying transaction between the applicant and the beneficiary. In other words, the issuer's obligation to pay under the guarantee is not contingent upon the performance or non-performance of the underlying contract. This principle is enshrined in international standards such as the ICC Uniform Rules for Demand Guarantees (URDG 758), which explicitly state that a demand guarantee is subject only to its terms, whether expressly stipulated in the guarantee itself or incorporated by refere...

Mitigating Risks in Transferring Banks under Letters of Credit

Introduction: When engaging in international trade, letters of credit (LCs) play a crucial role in ensuring secure and efficient transactions. However, the process of transferring the L/C can expose both the transferring bank and the parties involved to certain risks. Mishandling or errors during the transfer can lead to claims and defenses against the transferring bank. In this article, we will explore the potential risks associated with transferring banks under letters of credit and discuss effective strategies to mitigate these risks. Understanding the Risks: 1. Documentation Errors: Incorrect or incomplete documentation can result in discrepancies that may trigger claims against the transferring bank. These errors can include discrepancies in quantity, quality, pricing, or even incorrect shipping dates. 2. Non-compliance with Terms: Failure to comply with specific terms and conditions outlined in the LC can lead to disputes between parties involved. This could arise from non-c...

Protesting a bill due to non-payment in D/A collection

Protesting a bill due to non-payment in documentary collection can be a necessary step to mitigate the risk of non-payment by the Importer. Under the terms of documentary collection with delivery document against acceptance, there is always a possibility that the transaction may not work out as expected if the Importer fails to pay on the maturity date. In such cases, the Exporter's Bank, also known as the Remitting Bank, can instruct the Importer's Bank, or Collecting Bank, to protest the bill for non-payment or non-acceptance. However, it is important to note that the Collecting Bank is not obligated to follow these instructions. If the Collecting Bank decides to handle the protest instruction, they may issue a bill note. It is crucial to understand that the specifics of this note may vary depending on different jurisdictions. To note a bill, the Collecting Bank typically sends it to a public notary who will then re-present it to the Drawee (Importer) on the same day it was r...

Understanding the Differences between Licenses Issued by OFAC and the Bureau of Industry and Security (BIS)

When it comes to international trade and commerce, various government agencies play a crucial role in regulating and overseeing transactions involving sensitive goods or countries. The Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS) are two such agencies within the United States government. This article aims to shed light on the key differences between licenses issued by OFAC and BIS, providing a comprehensive understanding of their respective roles in facilitating lawful trade. 1. Purpose and Scope: The primary distinction between OFAC and BIS lies in their areas of focus. OFAC primarily administers economic sanctions programs, while BIS focuses on export controls. OFAC licenses are typically issued to authorize transactions involving sanctioned countries or individuals, whereas BIS licenses pertain to exports of controlled goods, technologies, or services. 2. Jurisdiction: OFAC operates under the U.S. Department of Treasury, while BIS falls under...

Detention in International Trade: Understanding the Holding or Delay of Goods/Cargo at Ports, Terminals, or Customs Facilities

In the realm of international trade, the smooth flow of goods and cargo is crucial for businesses to meet customer demands and maintain profitability. However, delays and detentions at ports, terminals, or customs facilities can disrupt supply chains, leading to financial losses and strained relationships between trading partners. This article aims to shed light on the concept of detention in international trade and explore its causes, impacts, and potential solutions. Understanding Detention in International Trade Detention refers to the holding or delay of goods or cargo beyond the agreed-upon timeframes at ports, terminals, or customs facilities. It occurs when shipments are unable to proceed due to various reasons such as administrative issues, documentation discrepancies, inspections, security concerns, congestion, labor disputes, or even natural disasters. Causes of Detention 1. Administrative Issues: Delays can occur due to administrative inefficiencies such as incomplete paperw...

Bank Guarantees: Understanding the Charges and Key Considerations

Introduction A bank guarantee is a financial instrument issued by a bank on behalf of a customer (applicant) to a third party (beneficiary). It assures the beneficiary that the applicant will fulfill a specific contractual obligation. If the applicant fails to meet their obligation, the beneficiary can claim payment directly from the issuing bank. Types of Bank Guarantees Bank guarantees are issued for various purposes and can take different forms, including: Performance Guarantees: Ensure the fulfillment of contractual obligations, such as construction contracts or supply agreements. Bid Guarantees: Assure that the applicant will enter into a contract after winning a bid. Advance Payment Guarantees: Protect the beneficiary in case the applicant fails to deliver goods or services after receiving an advance payment. Payment Guarantees: Guarantee the payment of a specific sum to the beneficiary under certain conditions. ...

The Electronic Trade Documents Act 2023: Revolutionizing Key Documents in the UK

Introduction In an era where digitalization is transforming every aspect of our lives, it comes as no surprise that the world of trade and commerce is also undergoing a significant shift. The United Kingdom has taken a bold step towards embracing this change by introducing the Electronic Trade Documents Act 2023. This groundbreaking legislation aims to revolutionize key documents used in trade transactions, such as bills of exchange, promissory notes, bills of lading, ship's delivery orders, warehouse receipts, mate's receipts, marine insurance policies, and certain cargo insurance certificates. In this article, we will delve into the implications and benefits of this act for businesses and the wider economy. 1. Bills of Exchange Traditionally used as a means of payment in international trade transactions, bills of exchange are negotiable instruments that allow for deferred payment. The Electronic Trade Documents Act 2023 enables these documents to be created, signed, transferr...

Trade and Supply Chain View

Search This Blog

Navigating Non-Compliant Demands: A Guide to Corrections Under Demand Guarantees