How to solve the problem when documents are inconsistent?

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In export letter of credit transactions, it is a common accident that documents are refused due to discrepancies between the documents and the letter of credit. So, how to remedy when document inconsistency occurs?

Key points for consistent documents

During the document review, the type, content and number of documents submitted by the beneficiary, and even the wording, etc.Must be fully consistent with the provisions of the letter of credit,Even if the actual shipment of goods or the contents of the contract and confirmation letter conflict with the provisions of the letter of credit, the letter of credit must prevail.

Therefore, if the documents negotiated by the bank appear to be consistent with the letter of credit but the goods are inconsistent, the bank will not bear any responsibility because it has no way of knowing about it; conversely, if the actual goods are correct but the documents appear to be inconsistent with the provisions of the letter of credit, the bank will need to bear the responsibility and issue the letter of credit. The certificate applicant can refuse payment of the redemption note accordingly.

Example analysis of document consistency

In actual export business, it is a rule that the content of the negotiation document must be strictly consistent with the provisions of the relevant letter of credit. However, it is sometimes very difficult for the seller to ensure that every negotiation document is completely consistent with the content of its related letter of credit. The following will analyze the reasons for document inconsistency through specific cases:

Document inconsistency cases

Chinese Company A and West African Company B entered into a contract for the purchase and sale of home appliances. Company A sold a batch of home appliances to Company B at CIF price terms. Both parties agreed to pay by letter of credit. After the contract was concluded, Company B opened a letter of credit in accordance with the contract. The letter of credit stipulated that Company A's delivery quantity was "approximately 5,000 units" and required Company A to provide an insurance policy to insure W·P·A (water damage insurance) and WAR RISK (war risk). Since it is customary for Company A to export such goods, it is always insured against ALL risks and war risks. Without careful examination of the certificates, Company A insured against ALL risks and war risks. After Company A ships the goods, it presents documents to the bank and requests payment. After reviewing the documents, the bank deemed them inconsistent and refused to pay.

There are two discrepancies raised by the bank:

1. The types of insurance in the insurance policy are inconsistent with the provisions of the letter of credit;

2. The bill of lading stated that the quantity of goods delivered by Company A was 4,480 units, which was inconsistent with the approximately 5,000 units stipulated in the letter of credit.

Obviously, in this case, Company A insured against all risks and war risks, while the letter of credit required water damage insurance and war risks.Although the coverage of all risks is greater than that of water damage insurance, which is beneficial to Company B, when reviewing the document, the bank only cares about whether the surface of the document is consistent with the letter of credit, regardless of the rights and obligations of the parties., the bank has the right to refuse payment because the insurance policy submitted by Company A does not match the provisions of the letter of credit.

As for the issue raised by the bank that the quantity of goods in the bill of lading is inconsistent with the provisions of the letter of credit, according to Article 39 of (UCP500), any words such as "about", "da generous", "fishing" or similar words are used for the amount, quantity and amount of the letter of credit. The unit price should be interpreted as an increase or decrease of no more than 10% in the relevant amount, quantity or unit price. Therefore, if the quantity of the goods in the bill of lading submitted by Company A is between 5,500 and 4,500 units, it is consistent with the letter of credit. But in reality Above, the quantity of goods specified in the bill of lading submitted by Company A is 4,480 units, which is inconsistent with the provisions of the letter of credit, and the bank has the right to refuse payment.

How to remedy document discrepancies?

The following four methods are a reference for remedial measures when documents are inconsistent. However, for those engaged in foreign economic and trade practices, it is more appropriate to strive to ensure that documents are consistent during the document preparation process.

Method 1: Negotiate against guarantee

The beneficiary issues a letter of guarantee acknowledging the defects in the document, stating that if the issuing bank refuses to pay, the beneficiary will repay the advance payment and fees to the negotiating bank, and at the same time call the issuer to authorize the issuing bank to make payment.

Method 2: table mention

The negotiating bank will list the discrepancies on the bill of lading and seek the opinion of the issuing bank, who will then contact the applicant whether he agrees to pay. The negotiating bank will negotiate immediately after receiving a positive reply. If the applicant refuses to accept the bill, the issuing bank will refund the bill, and the negotiating bank will still refund the bill to the beneficiary.

Method 3: Electric extraction

The negotiating bank will not send documents to the issuing bank for the time being. Instead, the issuing bank is notified by telex or fax that the documents do not match the content. If the issuing bank agrees to pay, it will negotiate and send the documents. If it disagrees, the beneficiary can take back the documents as soon as possible and try to make corrections.

Method 4: Collection with certificate

If the documents have serious discrepancies, or the validity period of the letter of credit has expired, and the letter of credit in hand cannot be used, the bank can only entrust the bank to indicate "the documents under the letter of credit will be collected for collection" in the letter sent to the issuing bank. The difference is called "certified collection". General collection is called "unlicensed collection". Since the applicant has already refused to accept the documents due to discrepancies, collection with documents is often refused, which is really a last resort.

It is very common to settle by letter of credit in international trade. Therefore, enterprises should strictly abide by the principle of consistent documents in export business. After receiving a letter of credit issued by a foreign buyer, they should carefully review the letter of credit to determine Whether the provisions of the letter of credit are consistent with the contract, whether there are soft clauses in the letter of credit, and whether the seller has the ability to fulfill the provisions of the letter of credit.

Once any problems are discovered, the buyer should be notified promptly to modify the letter of credit, and nothing should be left to chance. If you find that there are no problems after reviewing the certificate, you should carefully prepare documents in accordance with the provisions of the letter of credit and ensure that the documents are strictly consistent. Only in this way can you avoid adverse situations, nip them in the bud, and effectively protect your rights.