The problem for exporters
Statistics show that in as many as 50% of letter of
credit transactions, the seller's documents will be rejected
by the banks at presentation. This can be an extreme source of frustration
to both the importer and the exporter.
At the heart of the problem is the very
limited discretion available to banks in the matching of the terms and conditions
of the credit against the documents presented. They must do this in a very
literal way, with little room
for the exercise of judgement.
For example, suppose that a letter of credit calls for goods described as "Potassium chlorate crystals, minimum purity 98%". However the exporter presents a commercial invoice referring to the goods as "Potassium chlorate crystals, 99.95% purity".
Common sense would
suggest that this consignment will be acceptable to the buyer! However some
banks
do not feel able to make this assumption, and will reject the documents on
the grounds of a discrepancy
in the goods description.
There are numerous cases of apparently trivial variations between the terms of the credit and the documents (or between one document and another document) causing documents to be rejected. Hence exporters must learn to check documents before submission, using the same criteria that will be applied by the banks themselves.
Another source
of problems is the failure of the letter of credit to anticipate some aspect
of the transaction.
For example a common requirement on a credit is for presentation of a 'clean
on-board bill of lading'
- a document supplied by the shipping company attesting that the goods were
received in apparently good condition, and were loaded in the ship's hold.
However if the goods are hazardous or flammable, they
will be put on the deck of the ship instead of the hold, and the bill of lading
will be marked 'on deck'.
This is not an on-board bill of lading, so the documents must be rejected
by the bank.
To avoid such
problems, exporters need an understanding of the different types of commercial
document (transport document, insurance document etc.) and the things on each
document that may matter to
a bank in the context of presentation under a letter of credit.
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explains the main financial and commercial documents used in international trade |
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provides detailed guidance and numerous practice exercises on document checking |
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