Is a Deduction Allowed on the Invoice When the LC Does Not Call for It?

Introduction

In trade finance practice, many beneficiaries issue invoices showing deductions — such as discounts, credit notes, or advance payment adjustments — even when the LC does not expressly authorise such deductions. This often raises the question: Is the presentation still acceptable under the LC?

Below is today’s question from Rohini.

QUESTION

Dear Mr. Old Man,

The LC does not call for or explicitly allow a credit note.

The beneficiary has deducted the credit note amount in the invoice and drawn drafts accordingly.

Is this allowed?

Regards,

Rohini

_________

ANSWER

Dear Rohini,

Thank you for your question.

Please note ISBP 821 paragraph C8, which states:

“An invoice may indicate a deduction covering advance payment, discount, etc., that is not stated in the credit.”

Therefore, the beneficiary may show a deduction (including by way of a credit note) even when the LC does not call for or allow it.

However, the amount drawn must remain within the tolerances permitted under UCP 600 sub-articles 30(a) and 30(c).

Conclusion

Your invoice showing a deduction may be acceptable, provided the net amount drawn remains within the tolerances allowed by 30(a) and 30(c).

Best regards,

Mr. Old Man