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PRACTICAL DIFFICULTIES AND HOW TO ADDRESS THEM
Statistics show that the seller's documents will be rejected by the banks at presentation in as many as 50% of letter of credit transactions. The
banks use different criteria in matching the terms and conditions of the letter of credit against the documents presented. There often is little room for judgment. The refusal to pay a letter of credit can be an
extreme source of frustration to both the importer and the exporter.
Rejection for discrepancy in the description of goods
A bank may reject a letter of credit if the goods are not described
EXACTLY in all documents. Suppose that a letter of credit describes goods as "fabric with a maximum synthetic content of 25%". However, the exporter presents a commercial invoice referring to the goods as
"fabric with 20% synthetic content". Common sense would suggest that this consignment would be acceptable, yet some banks will reject the documents on the grounds of a discrepancy in the description of
goods. SUGGESTION: Exporters must carefully review the wording of all documents before submission, using the same criteria that the issuing and advisory bank applies, and ensure that all terms used match.
Rejection for failing to anticipate an aspect of the transaction
Each step of the transaction should be laid out in the letter of credit. Failure to do so by adding, deleting or not specifying certain steps of the process may result in a rejection. For example, a common
requirement of a letter of credit is a "clean on-board bill of lading"-a document supplied by the shipping company attesting that the goods were received in apparently good condition and were loaded in the
ship's hold. However, if the goods are hazardous or flammable, they will be put on the deck of the ship instead of the hold, and the bill of lading will be marked "on deck". This is not an on-board bill of
lading, so the bank can reject the documents. SUGGESTION: To avoid such problems, exporters need an understanding of the different types of commercial documents (transport documents, insurance documents etc.) and
the points on each document that may come under scrutiny.
Failure to comply with time limit
Letters of credit require that documents and procedures be completed within a specified time frame.
Banks will not issue payment unless these deadlines are met. The three major time limitations are: the expiration date of the credit, the shipping date and the maximum time allowed between dispatch and presentation.
SUGGESTION: When requesting the letter of credit, make sure that all the terms and conditions can be satisfied within the prescribed time limits. If the letter of credit calls for documents supplied by third
parties, make arrangements to have them available when requested. After the goods have been dispatched, make sure that all the documents are consistent with the letter of credit.
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