Handling Documentary Discrepancies

Handling Document Discrepancies in Documentary Credit Transactions

Document discrepancies are one of the most sensitive and frequent sources of conflict in trade finance operations. When documents are presented under a documentary credit, banks must examine them with precision and in accordance with UCP 600, International Standard Banking Practice (ISBP), and internal consistency across all documents.

What Is a Document Discrepancy?

A discrepancy arises when presented documents fail to comply with:

• The terms and conditions of the documentary credit,

• The standards of UCP 600 (if applicable), and

• Cross-consistency among the documents themselves.

⚠️ A document discrepancy indicates non-conformance and gives the bank the right to refuse payment.

In practice, advising discrepancies is often the most contentious interaction between banks and their clients—or between two banks—within the scope of a documentary credit.

Clarity Is Critical in Refusals

When refusing documents, the bank must specify the exact reason. Vague statements like “Invoice not as per LC” are insufficient. The presenter must understand precisely what the issue is, such as:

• A missing certification,

• A mismatch in the goods description, or

• Inconsistencies in the date or amount.

A valid refusal notice should enable the presenter to understand the issue even without access to the documentary credit itself.

✅ A good test for any discrepancy: Would you feel confident defending it in court?

Document Presentation Guidelines

A complete document submission should include a cover schedule that outlines:

• The presenter’s reference number and contact information,

• Instructions for payment or settlement,

• Charge payment details, and

• Preferred method of receiving the settlement advice.

Timeframe for Document Examination

Under UCP 600, each bank involved (nominated, confirming, or issuing) has a maximum of five banking days following the date of presentation to determine compliance. While UCP allows this maximum, many banks complete the examination within 24–48 hours, driven by competition and operational efficiency.

📅 Each bank independently examines the documents—meaning multiple assessments may occur.

Bank Responsibilities and Discretion

Determining Compliance

Banks involved—whether nominated, confirming, or issuing—are responsible for determining whether the documents presented comply. Notably, the identification of a discrepancy does not always result in refusal.

Example: If six copies were required but only five are submitted, the bank may choose to produce the sixth copy internally rather than reject the documents.

Waivers and Responses to Discrepancies

The issuing bank has discretion to approach the applicant for a waiver of the discrepancy. This interaction can produce several outcomes:

1. ✅ Waiver Accepted by Both the Applicant and the Issuing Bank
   → The bank honors the credit.

2. ⚠️ Waiver Accepted by Applicant, Rejected by Issuing Bank
   → Bank issues a refusal notice and may return or request instructions for the documents.

3. ❌ Waiver Rejected by Applicant
   → Bank refuses the documents and returns or seeks instructions.

4. ⌛ No Waiver Received Within Time Limit
   → If no waiver is received by the end of the fifth banking day following presentation, the bank must refuse under UCP 600.

5. 🔁 Bank Withdrawal Refusal Due to Error
   → For example, the presenter proves that the refusal was invalid based on the actual documentary credit or amendment terms.

What Beneficiaries Must Consider

Beneficiaries must be alert to potential oversights, including:

• Overlooked credit conditions,

• Misread or missing document data,

• Improper document preparation.

To minimize disputes, beneficiaries should be familiar with UCP 600 Articles 3, 14, and 17–32, and the latest ISBP publication. Understanding how a bank evaluates documents helps ensure that those documents are prepared to a standard that will withstand scrutiny.

📘 The ISBP is designed to guide banks in applying UCP articles—but beneficiaries can use it in reverse to prepare compliant documents.

Options Available When Discrepancies Occur

When documents are found to be discrepant, the presenter generally has three options:

1. Correct the Discrepancy
   – Resubmit corrected or amended documents.

2. Request Waiver via the Nominated or Confirming Bank
   – Ask the bank to seek the issuing bank’s permission to honor despite discrepancies while holding the documents.

3. Forward to Issuing Bank for Settlement Decision
   – Request that the nominated or confirming bank send the documents to the issuing bank, allowing it to evaluate and decide on payment.

⚠️ Terms such as “on a collection basis” or “in trust” may be used between the beneficiary and their presenting bank—but should never be communicated to the issuing bank, as they suggest documentary collection rules (not credit rules) apply.

Preventing Discrepancies: A Shared Responsibility

Many discrepancies—and the resulting delays or disputes—can be avoided through:

• Clear drafting of credit and amendment applications,

• Accurate document preparation by the beneficiary,

• Diligent review of compliance criteria before presentation.

✅ Handled correctly, the documentary examination process protects all parties and promotes confidence in international trade.

📬 Contact US Capital Private Bank

📧 Email: [email protected]
🌐 Website: https://uscapitalprivatebank.com
📞 Phone: +971529926005

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