Managing LC Discrepancies
A discrepancy occurs when the documents presented do not comply strictly with the LC terms. Under UCP 600, banks are required to refuse non-compliant documents.
Strict Compliance Doctrine
International courts and ICC Banking Commission opinions have consistently upheld the
strict compliance principle. Minor typographical errors that do not affect meaning are generally acceptable, but material discrepancies result in refusal.
What Happens When Documents Are Discrepant?
Option 1: Waiver by Applicant
The presenting bank notifies the applicant of the discrepancies and seeks a waiver. The applicant may agree to take the documents despite discrepancies. This is the most common resolution.
Option 2: Re-Presentation
The beneficiary corrects the documents and re-presents them, provided the LC has not expired and the presentation period remains.
Option 3: Collection Basis
Documents are forwarded on a collection basis — the bank releases documents only when the buyer agrees to pay. The beneficiary loses the bank payment guarantee.
Option 4: Indemnity
The beneficiary provides a letter of indemnity to the bank, accepting responsibility for any loss arising from the discrepancy.
Most Common Discrepancies (ICC Survey)
- Late presentation of documents
- Bill of lading issued/dated after the LC expiry
- Description of goods on invoice differs from LC
- Absence of required documents
- Insurance coverage insufficient or incorrect
- Marks and numbers inconsistent across documents
- Unsigned documents where signature required
- Bill of lading not showing "on board" notation
UCP 600 Key Articles for Document Examination
- Article 14: Standard for examination of documents (5 banking days)
- Article 15: Complying presentation — when to honor
- Article 16: Discrepant documents — refusal procedure