Letter of Credit Discrepancies: Why Banks Refuse Documents

Why banks refuse documents

A letter of credit is a bank's payment promise, separate from the sale contract. Banks examine only the documents presented, not the goods, and pay only if the documents comply on their face with the credit and with UCP 600, the ICC rules almost every credit incorporates by reference.

This is strict, though not literal, compliance: close enough is not good enough. A missing signature, a date outside the allowed window, or wording that contradicts another document is enough for a refusal, whatever the goods were actually like.

How banks examine documents

Each bank in the chain has up to 5 banking days after presentation to decide if documents comply, regardless of any deadline in the credit itself (Art. 14(b)).

Documents must reach the bank within 21 calendar days after the shipment date if the credit sets no other period, and always before expiry (Art. 14(c)). Missing either deadline is itself a discrepancy.

The standard is consistency, not identical wording: data must not conflict with the credit, another document, or standard banking practice (Art. 14(d)). ISBP 821 (2023) is the ICC's reference for that practice; its 2026-2027 plan confirms neither UCP 600 nor ISBP 821 is being revised for now.

Commercial invoice

The invoice must be issued by the beneficiary, made out to the applicant (unless the credit is transferable), and in the credit's currency (Art. 18).

It is the one document where the goods description must match the credit; other documents may use a general description that does not conflict with it. The amount must not exceed the credit, subject to any tolerance allowed.

Bill of lading

A marine bill of lading must show the carrier's name, be signed by the carrier, master or a named agent, and carry a dated on-board notation if the printed wording does not already say shipped on board (Art. 20).

It must show the ports of loading and discharge from the credit, be a full set of originals if issued in more than one, and carry no clause declaring defective packaging or condition. Unless the credit allows it, a bill subject to a charter party is not acceptable.

Insurance document

For CIF or CIP shipments, the insurance document must be issued and signed by an insurer, underwriter or their named agent, not a broker's cover note, and in the credit's currency (Art. 28).

Cover must be at least 110% of the CIF or CIP value unless the credit says otherwise, and dated no later than shipment, or it must expressly state cover starts no later than the shipment date.

Tolerances and partial shipments

Under Article 30, the words "about" or "approximately" before the amount, quantity or unit price allow up to 10% more or less. Without them, the quantity may vary by 5% more or less, unless the credit states it in packing units or individual items, and the total drawn must not exceed the credit amount. A drawing of up to 5% less than the credit amount is also allowed when the full quantity is shipped and any stated unit price is not reduced.

Partial shipments and drawings are allowed unless the credit forbids them (Art. 31). Shipments on more than one means of transport of the same mode, on the same day to the same destination, do not count as partial even with different transport-document dates.

When documents are discrepant

A bank that finds discrepancies must give one notice listing all of them, within the same 5 banking days used for examination, stating it is holding, refusing or returning the documents (Art. 16). Missing that window means it can no longer claim a discrepancy.

Refusal does not cancel the sale: the applicant can waive discrepancies and let the bank pay anyway, but is not obliged to. Issuing banks often also charge a discrepancy fee, commonly USD 50-150, deducted from proceeds; this is market practice, not a UCP rule, enforceable only if the credit states it.

For electronic presentation, the eUCP (Version 2.1) supplements UCP 600 on formats, applying only when the credit allows it.