WHERE THE DOCUMENTS CONTAIN DISCREPANCIES NOT WAIVED BY THE APPLICANT

QUESTION

Hi Mr. Old Man,

I hope you are doing fine. I have some follow-up questions again.

1/ What happens to an LC if it is discrepant and the buyer refuses to waive the discrepancies?

a. Does the buyer typically let the LC expire? If so, are there any fees charged to the seller?

b. I assume the seller would then need to either find a new buyer in the destination country or arrange transportation to return the cargo to their own country, correct?

2/ For an LC at sight, can the buyer intentionally delay approving the LC until the shipment is close to arriving? My concern is that it will mess up my cash flow.

Thank you!

Tengku

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ANSWER

Hi,

Where the presented documents contain discrepancies and the applicant (buyer) refuses to waive the discrepancies and does not take up the documents to take delivery of the cargo, the issuing bank may act in accordance with the notice of refusal previously sent to the presenting bank, i.e., to hold the documents until it receives further instructions from the presenter or to return the documents to the presenting bank.

During the validity of the LC, the beneficiary can re-present the revised documents and if they constitutes a complying presentation, the issuing bank must still pay.

In case the discrepant documents are returned to the presenting bank, the beneficiary still pays the document checking fee and may be requested to pay the document returning fee plus courier charge in case charges are for the beneficiary’s account.

In case the documents are rejected and returned, the beneficiary may find a new buyer or arrange to transport the cargo back to his country.

Sometimes the buyer may make a condition that he will accept the documents and pay if the seller agrees to reduce the amount claimed. The beneficiary, if no new buyer is found, may have to accept the condition in order to save costs rather than ship the goods back to the country.

In an LC transaction, it is the issuing bank, not the applicant (buyer), that is obligated to pay. The issuing bank must pay when the presented documents are determined to comply with the LC terms and conditions. The maximum time allowed for the issuing bank to examine the documents is not more than 5 banking days. Therefore, the issuing bank will usually pay on the 6th or 7th bank day from the date of receipt of the documents regardless of whether the goods have arrived at the port or not. Payment after this time is considered unreasonable. Payment on the 9th banking day or later is considered unreasonable and may be subject to a penalty.

Best regards,

Mr. Old Man