Shocking! Can Discrepancies in Letter of Credit Push Trade into a Desperate Situation?

On the stage of international trade, the letter of credit, as an important means of payment, provides certain credit protection for both buyers and sellers. However, the existence of discrepancies in the letter of credit is like a "trap" hidden in the dark. A slight oversight may bring huge risks to the transaction. Today, let's explore this crucial topic of discrepancies in the letter of credit together.

Simply put, discrepancies in letter of credit refer to the situation where the documents submitted by the beneficiary do not conform to the provisions of the letter of credit terms on the surface. For example, there is a slight deviation in the description of goods from that in the letter of credit, or the types and copies of the submitted documents do not meet the requirements of the letter of credit. Every seemingly minor difference may constitute a discrepancy. Once these discrepancies occur, the issuing bank may refuse to pay, resulting in the exporter's inability to receive payment smoothly.

First is document discrepancy. Documents are the core of letter of credit transactions, and any error in the documents may lead to discrepancies. For example, the consignee information on the bill of lading does not conform to the provisions of the letter of credit, or there is an error in the amount calculation on the invoice. Second is the discrepancy in goods description. The letter of credit has detailed regulations on the specifications, quality, quantity, etc. of the goods. If there is a discrepancy between the actual goods and the description, it will also constitute a discrepancy. Third is the discrepancy in the time of presentation of documents. The letter of credit has clear requirements for the time limit for presentation of documents. If the exporter fails to present the documents within the specified time, even if the documents themselves are problem-free, there will still be discrepancies.

On the one hand, it is due to the business personnel's insufficient understanding of the letter of credit terms. The letter of credit terms are often complex and professional. If the business personnel fail to interpret them accurately, errors are likely to occur during the document preparation process. On the other hand, poor communication between the trading parties may also lead to discrepancies. For example, after the details of the goods are changed, the letter of credit terms are not modified in a timely manner, resulting in inconsistencies between the documents and the letter of credit. In addition, some force majeure factors, such as damage to the goods during transportation, may also cause the actual goods to be inconsistent with the description in the letter of credit.

For exporters, prevention is the key. After receiving the letter of credit, carefully review the terms to ensure that all requirements can be met. If unreasonable terms are found, communicate with the importer in a timely manner to modify them. During the document preparation process, operate strictly in accordance with the requirements of the letter of credit to ensure "conformity between documents and the letter of credit, and conformity between documents". Once a discrepancy is found, negotiate with the importer as soon as possible, strive for the importer to accept the discrepancy and instruct the issuing bank to make payment. If the importer refuses, the exporter needs to consider replacing the correct documents within the specified time, or seeking other solutions, such as reducing the price of the goods for disposal.

Discrepancies in letter of credit are issues that cannot be ignored in international trade. Both exporters and importers should fully recognize its risks, strengthen the study and management of letter of credit business, operate cautiously, and reduce the losses caused by discrepancies. I hope that everyone can see through this "trap" of discrepancies on the path of international trade and carry out business smoothly. Let's actively respond and move forward steadily in the tide of international trade.