Getting the documents right

When Evelyn hands her documents to the bank, that is called a presentation. The bank must answer one question: is this a complying presentation? In other words, do the documents match:

• the terms of the LC,
• the UCP 600 rules the LC follows, and
• international standard banking practice: the way trained document checkers around the world read documents. The ICC's guide to this practice is called ISBP (current version: ISBP 821).

The bank decides from the documents alone, on their face. It doesn't phone the factory, visit the port or ask what Tanvir "meant". If it isn't on the paper, it doesn't count.

And the bank can't sit on the file forever. Each bank that checks the documents (the nominated bank, any confirming bank and the issuing bank) has at most five banking days, counted from the day after presentation, to decide. Banking days are days the bank is normally open, so weekends and holidays don't count.

Why so strict, and why so fast? Because the seller is waiting for her money, the buyer is waiting for his goods, and both need an answer they can predict.

Beginners often think every document must repeat the LC word for word. Not so. The rule is gentler, and smarter: data in a document need not be identical to the LC or to the other documents, but it must not conflict with them.

• The invoice is special. The goods description in the commercial invoice must correspond with the LC. If the LC says "100% cotton men's crew-neck T-shirts", an invoice that just says "T-shirts" falls short. The invoice may add more detail, as long as nothing contradicts the LC.
• Other documents may speak in general terms. The bill of lading or the certificate of origin can simply say "garments", as long as nothing in it conflicts with the LC.
• Conflict is the real problem. If the invoice says 20,000 pieces and the packing list says 18,000, the bank can't tell which is true.
• Small typing slips that don't change the meaning, such as "T-shrits" for "T-shirts", are generally not treated as discrepancies. Don't push your luck, though.
• Extra documents are ignored. If Evelyn adds a paper the LC never asked for, the bank disregards it and may return it. It can't be used to find fault with her.

Trade bankers see the same ten troublemakers again and again:

• Late shipment: the on-board date on the bill of lading is after the latest shipment date in the LC.
• Late presentation: documents arrive after the presentation period. If the LC is silent, originals of the transport document must be presented within 21 calendar days after shipment.
• Expired LC: documents presented after the expiry date. No presentation period can stretch past expiry.
• Amount problems: claiming more than the LC allows, or an invoice in a different currency from the LC.
• Wrong or missing documents: one certificate forgotten, or copies where originals were asked for.
• Description mismatch: the invoice doesn't correspond with the LC's goods description.
• Missing signatures or endorsements: a document the LC says must be signed isn't, or the bill of lading isn't endorsed as the LC requires.
• Inconsistent data: weights, marks, quantities or container numbers that differ between documents.
• Unclean bill of lading: the carrier has added a note such as "cartons torn".
• Insurance issues: cover too low, in the wrong currency, or starting after the shipment date. If the LC is silent, cover must be at least 110% of the CIF or CIP value.

Notice: hardly any are about the T-shirts. They are about dates, numbers and care.

If the bank finds discrepancies, it may refuse to pay. But a refusing bank must play fair:

• It sends one notice listing all the discrepancies, no later than the end of the fifth banking day after presentation. It can't drip them out one at a time.
• The notice also says what it is doing with the documents, such as holding or returning them.
• If it misses the deadline or skips the proper notice, it generally loses the right to refuse.

Then what? The seller has a few roads:

• Correct and re-present. Fix the documents and present them again, within the presentation period and before expiry. This is the cleanest road, and the one Evelyn took.
• Hope for a waiver. The issuing bank may ask the buyer whether he will accept the discrepancies. Many do, if they want the goods, but it is his choice, and asking doesn't extend the bank's five days.
• Send on approval or as a collection. Her bank sends the documents on without paying first. Either way, she waits, and payment now depends on the buyer saying yes.

And there is a price. Many issuing banks charge a discrepancy fee, often taken out of the seller's payment. For a garment exporter, delay can also squeeze the money for her back-to-back LC.

Most discrepancies are born long before shipment. A few habits stop them early:

• Check the LC the day it arrives. Can you really ship by that date? Is the goods description right? Can you actually get every document it asks for? If not, ask the buyer for an amendment now, not the night before shipment. Remember, an amendment binds Evelyn only once she accepts it.
• Keep a document checklist. List every document the LC asks for, how many originals and copies, who issues it, who signs it, and any special wording.
• Copy names and addresses with care. Use the same names for the buyer, the seller, the ports and the goods on every document. Many firms keep one master sheet that everyone copies from.
• Brief the forwarder and the insurer early. They must know exactly what the LC needs on their documents.
• Present early. Don't wait for day 20 of 21. If the bank finds a slip, early presentation leaves time to fix it.
• Learn from each refusal. Keep a list of past discrepancies and check those first next time.

After her scare, Tanvir now works from a one-page checklist. Evelyn calls it the cheapest insurance she has ever bought.