LC Discrepancies Explained: The 7 Most Common Mistakes & How to Avoid Them
60–80% of LC documents have discrepancies on first submission. Learn the 7 most common errors (late docs, description mismatch, missing on-board BoL) and how to prevent rejection.
What is an LC Discrepancy?
A Letter of Credit discrepancy is any inconsistency between the documents you present and the terms written in the LC. Under UCP 600 Article 14, the examining bank has a maximum of 5 banking days to decide whether your presentation is "complying" (matches the LC) or "discrepant" (does not match).
If the bank finds even one discrepancy, it can refuse the entire presentation. The buyer must then decide whether to waive the discrepancy (and pay anyway) or reject the payment. This process delays your payment by 5–10 days and costs a discrepancy fee (USD 50–150) even if the discrepancy is eventually waived.
The 7 Most Common Discrepancies
#1: Documents Presented Too Late (Expiry Discrepancy)
The problem: You present documents after the LC expiry date specified in Field 31D.
Why it happens: Tight shipment schedule, delays in obtaining inspection certificates or bills of lading, courier delays.
Example: LC expires December 31, 2026. You ship on December 15 but don't present documents until January 5, 2027. Automatic rejection.
How to avoid it: Always check the "Latest Presentation Date" in the LC (usually 21 days after shipment per UCP 600 default). Mark it in your calendar. Ship early enough to present documents well before this deadline. Use expedited courier if needed - the USD 50 courier cost is worth avoiding a discrepancy fee + payment delay.
#2: Goods Description Does Not Match (Field 45A Mismatch)
The problem: The description on your commercial invoice is different from the exact wording in LC Field 45A.
Why it happens: Invoice prepared by factory/trader using their standard wording, not the LC wording. Small paraphrasing ("high-grade coal" vs "premium thermal coal") seems innocuous but violates UCP 600 Article 18(c).
Example (Red Flag):
- LC Field 45A says: "Coal, thermal, bituminous, Indian, Chhattisgarh origin, 6,000 kcal/kg GAR, less than 0.8% sulfur"
- Your invoice says: "Premium Indian coal, 6,000 kcal NAR basis"
- Bank rejects: Description does not correspond (GAR vs NAR, "Chhattisgarh" omitted, "premium" added)
How to avoid it: Copy the goods description from LC Field 45A word-for-word onto your invoice. Do not edit, abbreviate, or improve it. If the invoice needs more detail (factory info, lot numbers), add detail below the LC description, but do not change the core LC text. UCP 600 Article 18(c) allows additional detail as long as it does not conflict.
#3: Bill of Lading Not Marked "On Board"
The problem: The Bill of Lading shows "Received for Shipment" but not "On Board" (or "Shipped").
Why it happens: Shipping line issues a received-for-shipment B/L when cargo arrives at the dock, but doesn't update it to "On Board" until later. You present the document before it's updated.
Example:
- Your cargo arrives at port on December 10. Shipping line issues "Received for Shipment" B/L dated December 10.
- Ship loads on December 12. B/L should be updated to "On Board" dated December 12.
- But you present the "Received" version from December 10. Bank rejects.
How to avoid it: Instruct the shipping line to issue an "On Board" Bill of Lading with the actual date the vessel sailed. Under UCP 600 Article 20, the B/L must clearly show goods were actually loaded. Do not accept "Received for Shipment" for LC presentation. Wait for the "On Board" version even if it delays submission by 1–2 days - it's worth it to avoid a discrepancy.
#4: Insurance Coverage Is Below 110% CIF
The problem: You insure the cargo for 100% of CIF value, but the LC requires 110% minimum (standard).
Why it happens: Insurance department cuts costs by insuring only the invoice amount, not realizing the LC requires 110% buffer to cover bank's risk exposure.
Example:
- CIF value (invoice + freight + insurance premium): USD 100,000
- Insurance policy issued for USD 100,000
- LC requires: USD 110,000 minimum (110% of CIF)
- Bank rejects: Insurance coverage insufficient
How to avoid it: Always insure for at least 110% of the CIF value. This is standard practice and expected by banks. The extra 10% premium is minimal (typically USD 500–1,000 on a USD 100k shipment) and is a normal cost of trading. Calculate: CIF value × 110% = insurance face amount.
#5: Late Shipment (After LC Latest Shipment Date)
The problem: The Bill of Lading date (proof of shipment) is after the "Latest Date of Shipment" in LC Field 44C.
Why it happens: Production delays, port congestion, weather delays, or miscommunication between factory and shipping department.
Example:
- LC Field 44C: "Latest shipment date: 30 November 2026"
- B/L date: 05 December 2026
- Bank rejects: Shipment is 5 days late
How to avoid it: Plan your production and shipping schedule carefully. Work backward from the LC latest shipment date. If it's November 30, and your factory needs 45 days to produce, your deadline is October 15 to start production. Include buffer time for unexpected delays (10–15% extra). When dates get tight, contact the buyer immediately - they can amend the LC to extend the shipment date (costs USD 50–100 amendment fee, but avoids a discrepancy + payment delay).
#6: Invoice Amount Is Higher Than LC Amount
The problem: Your commercial invoice total exceeds the LC amount (unless Field 39A allows tolerance).
Why it happens: Currency fluctuations, cost overruns, or invoice calculation errors.
Example:
- LC amount: USD 500,000
- Your invoice total: USD 502,500 (due to shipping cost overrun)
- LC Field 39A does NOT allow tolerance
- Bank rejects: Invoice exceeds LC amount (UCP 600 Art. 18(b))
How to avoid it: Never invoice more than the LC amount (unless Field 39A allows tolerance, e.g., "5/5" meaning ±5%). Check Field 39A carefully. If it's not set, your invoice must equal or be less than the LC. If you anticipate cost overruns, request the buyer amend the LC to increase the amount before shipment.
#7: Missing or Incorrect Documents
The problem: One or more required documents are missing, unsigned, undated, or incorrectly signed.
Why it happens: Incomplete document collection, failure to obtain required signatures (captain's signature on certificate, bank authorization), or administrative oversight.
Common missing documents:
- Commercial invoice (not signed when LC requires signature)
- Bill of Lading (short set presented instead of full set)
- Certificate of Origin (missing or wrong issuing authority)
- Inspection Certificate (SGS/BV signature missing or undated)
- Insurance Certificate (not issued by insurer, not in correct format)
- Packing List or Weight Certificate (missing when required)
Example:
- LC Field 46A requires: "Full set original Bills of Lading (3/3)"
- You present only 2 originals (one is missing)
- Bank rejects: Short set presented
How to avoid it: Create a document checklist from LC Field 46A and tick off every document before submitting. Verify signatures, dates, issuing authority. Double-check that you have the correct number of originals (full set = all originals issued by the transport company). Use the LC Discrepancy Scanner to auto-validate the document set.
The 15-Point Pre-Shipment Audit Checklist
Run this checklist 48 hours before you ship. Catch errors early - they're cheaper to fix before shipment than as discrepancies after presentation.
| # | Check Item | Source in LC | Action |
|---|---|---|---|
| 1 | Latest Presentation Date | Field 31D | Mark calendar; ensure you can present documents within 21 days of shipment |
| 2 | Latest Shipment Date | Field 44C | Confirm production + shipping will be complete by this date |
| 3 | Goods Description (exact match) | Field 45A | Copy to invoice word-for-word; no edits or abbreviations |
| 4 | Required Documents (complete list) | Field 46A | Create checklist; tick off each document before submission |
| 5 | Invoice Amount | Field 32B + 39A | Ensure invoice ≤ LC amount (or within tolerance in Field 39A) |
| 6 | Shipping Ports | Field 44E + 44F | Verify B/L will show exact same ports as LC |
| 7 | Quantity + Tolerance | Field 32B + 39A | Confirm invoice quantity is within tolerance (if "about" or ±% stated) |
| 8 | Insurance Coverage | Field 28 (Insurance) | Verify policy amount = at least 110% of CIF value |
| 9 | Payment Terms (Draft) | Field 42C + 42A | If usance, ensure draft wording matches LC (e.g., "90 days after B/L date") |
| 10 | Bill of Lading Type | UCP 600 Art. 20 | Ensure "Order" B/L (not straight); marked "On Board" (not "Received for Shipment") |
| 11 | Certificate of Origin | Field 46A | Verify issuing authority matches LC; obtain early (often delays final documents) |
| 12 | Inspection Certificate | Field 46A | Verify SGS/BV signature, date, and commodity specs match LC description |
| 13 | Partial Shipments / Transhipment | Field 43P + 43T | If multiple shipments or vessel changes allowed, ensure B/L reflects LC terms |
| 14 | Additional Conditions | Field 47A | Read carefully; obtain any special certs or permissions noted here |
| 15 | Use LC Discrepancy Scanner | All fields | Run automated check on all draft documents before final submission |
UCP 600 Article 14: The 5-Day Rule
Under UCP 600 Article 14(a), the examining bank has a maximum of 5 banking days to determine if your presentation is complying or discrepant. Here's what you need to know:
- 5 banking days = clock starts when documents arrive at the bank. Weekends and holidays do not count.
- Day 1: Bank receives documents; begins examination.
- Days 2–5: Bank contacts you if discrepancies found (to request waiver from buyer).
- By end of Day 5: Bank must send notice of discrepancies OR give notice of honor (payment approved).
- If bank fails to notify within 5 days: Under UCP 600 Article 16, the bank loses the right to claim discrepancy. You win by default.
Practical note: Even if the bank honors on Day 4 or 5, the delay costs you time-value of money and working capital. Avoiding discrepancies in the first place means getting paid on time (Day 1–2 instead of Day 5).
What Happens After a Discrepancy
Scenario 1: Buyer Waives the Discrepancy
- Bank notifies you of discrepancy by Day 5.
- You contact buyer and request waiver.
- Buyer agrees and instructs their bank to pay anyway (sends written authorization or "waiver instruction").
- Bank pays you within 1–2 days of receiving waiver.
- You pay a discrepancy fee (USD 50–150) for the bank's review work.
- Total delay: 5–7 days from initial presentation.
Scenario 2: Buyer Refuses Waiver (Rejects Payment)
- Bank notifies you of discrepancy.
- You contact buyer requesting waiver, but buyer refuses (or doesn't respond).
- Bank returns documents to you or holds them pending further instruction.
- Goods arrive at destination; buyer takes them (or refuses).
- Payment dispute, possible litigation; working capital severely impaired.
Scenario 3: You Correct the Discrepancy (Often Impossible)
- Some discrepancies can be cured (e.g., obtain a missing signature, extend an LC via amendment).
- Most cannot (e.g., late shipment date cannot be changed after the fact).
- If LC allows amendments, buyer can amend to accept the discrepancy (rare and costs USD 50–100).
FAQ: Discrepancies & Payment
Q: If I have a discrepancy, will I definitely not get paid?
A: No. About 80–90% of discrepancies are waived by the buyer (in established relationships or when the buyer still needs the goods). But waivers cost time and a discrepancy fee. The buyer might refuse if they've changed their mind, are in financial distress, or dispute the quality of goods. Your best strategy: avoid discrepancies entirely.
Q: Can I appeal a discrepancy decision?
A: No direct appeal to the bank. But you can contact the buyer and request a waiver instruction (written or via bank SWIFT message). If the buyer agrees, they instruct their bank to pay despite the discrepancy. If the buyer refuses, your only recourse is to pursue the buyer via the underlying sales contract (which may require arbitration or litigation - expensive and slow).
Q: What if the LC terms are impossible to meet?
A: Negotiate an amendment before shipment. Contact the buyer and request the amendment (e.g., extend the shipment date, relax the goods description). Amendments cost USD 50–100 but are much cheaper than a discrepancy. Always resolve LC issues before goods are shipped - after shipment, you have limited leverage.
This guide is for trade finance education. Always refer to UCP 600 (ICC Publication 600, 2007) and ISBP 745 (International Standard Banking Practice) for definitive rules on discrepancies. When disputes arise, consult with your bank or a trade finance attorney.
Frequently asked questions
Why do banks reject letter of credit documents?#
Banks reject LC documents when they find a discrepancy – any inconsistency between the documents and the LC terms. UCP 600 Article 14 requires strict compliance. Most common reasons: late presentation (after shipment date + 21 days), goods description mismatch, missing on-board notation on Bill of Lading, or invoice exceeds LC amount.
What are the most common LC discrepancies?#
The 7 most common: (1) Late presentation (60–80% first-presentation rate means most have at least one issue). (2) Goods description mismatch. (3) Missing on-board BoL. (4) Insurance below 110% CIF. (5) Late shipment date. (6) Invoice exceeds LC. (7) Missing/unsigned documents. Use the LC Discrepancy Scanner to catch these before submission.
How much do discrepancy fees cost?#
Typical discrepancy fee: USD 50–150 per presentation. Charged by the examining bank for the administrative work of reviewing the discrepancy, even if it's eventually waived. On a USD 1M LC, one discrepancy fee = 0.005%–0.015% of transaction value. Costs add up over multiple shipments.
How long does an LC discrepancy delay payment?#
Once discrepancies are found, the examining bank notifies the presenting bank within 5 days. The buyer then has time to waive or reject. Total delay: typically 5–10 days. During this time, you don't have access to payment, creating working capital strain.
Can I get a waiver for my LC discrepancy?#
Yes. The buyer (applicant) can authorize the bank to waive any discrepancy. This is called a 'waiver' or 'acceptance' under UCP 600 Article 14. However, the bank still charges the discrepancy fee for its review work. Waivers are granted 60–70% of the time if the discrepancy is minor (e.g., slight amount tolerance, minor document dating issue).
How do I avoid LC discrepancies?#
Six best practices: (1) Print and highlight the LC, especially fields 45A (goods description), 44C (shipment date), 31D (expiry), 48 (presentation period). (2) Create a checklist of all required documents from Field 46A. (3) Match goods description exactly (copy/paste from LC). (4) Verify Bill of Lading date and on-board notation. (5) Check insurance ≥110% CIF and invoice ≤ LC amount. (6) Use the free LC Discrepancy Scanner tool to auto-check.
What does UCP 600 Article 14 say about discrepancies?#
Article 14 sets the 'standard for examination' of documents. Key points: (1) Bank has max 5 banking days to decide complying vs discrepant. (2) Strict compliance required – no substantial equivalence allowed (unlike UCP 400). (3) Discrepancy notice must be given within 5 days or presentation is deemed complying. (4) Waivers are optional for the applicant.
Is there a free LC discrepancy checker?#
Yes. ssltglobal.com offers the free LC Discrepancy Scanner tool that auto-checks your documents against the LC terms and flags potential discrepancies before submission. It checks goods description, dates, amounts, document list, insurance, and signature requirements.