WHAT ARE THE TYPES OF LC DISCREPANCY?, TT vs LC

LETTER OF CREDIT (LC) DEFINITION /WHAT IS LC?

 

·       In this LC discrepancy lesson we will first discuss what is a LC . It is given by a bank and ensures that the seller is paid on time and in full.

·       If the buyer is unable to make such a payment, the bank pays the entire or remaining balance on the buyer's behalf.

·       A Letter of Credit (LC) is a document that assures the seller of the buyer's payment.

 

LC ISSUING PROCUDURE / HOW CAN WE OPEN A LC?

·       You can open a Letter of Credit (LC) with your bank. Your bank called as applicant Bank or opening Bank.

·       Because the LC is opened on the basis of your purchase contract, a copy purchase order / export contract, as well as other needed papers, must be produced to Bank according to the Banks requirements.

·       Dully filled and authorized LC application to be produced to Bank in order to issue the LC

·       You (applicant) can request LC draft before issuing the final LC. This enables you to the check for corrections and get it approved with your beneficiary.

·       Your bank may require you to hold a portion of your ‘margin amount' with them. This may depend based on your Bank facility agreement with your Bank. If the Bank facility has been approved with approved limits for LC and then margin is not required. However, if you don’t have any pre-approved credit approval then the requirement of cash/or any margin is required to open the LC.

 

WHAT IS THE DIFFERENCE BETWEEN TT VS LC – LETTER OF CREDIT PAYMENT VS TT

 

	Telegraphic Transfer (TT)	LC Payments
1	TT stands for Telegraphic Transfer or Telex Transfer, or Wire Transfer, which is the electronic funds transfer of payments from one bank account to another bank account.	The term LC refers to a request from a buyer to a foreign bank or local Bank to pay a specific amount to the seller if LC terms are OK.
2	A telegraphic transfer is an electronic technique of sending money that is mostly used for international wire transfers and this is also called as Bank transfer. This the most famous and quickest way to transfer the money from one account to another.	Payments will affect only if the LC documents are submitted according to the LC terms and accepted by the Bank.
3	In the UK financial system, telegraphic transfers are most usually used to refer to Clearing House Automated Payment System (CHAPS) transfers.	If LC documents got discrepant payment will not be completed.
4	Depending on the origin and destination of the transfer, telegraphic transfers usually take one second to four business days to complete.	Lc payments will takes minimum 5-7 working days to complete if the LC documents are clean.
5	Intermediary Banks will involve if the payments is in difference currency.	Intermediary Banks will involve only LC advised through intermediary Bank. If not, intermediary banks involvement is not happening even the currencies are difference,
6	No discounting option is available for TT.	LC payment can be discount
7	No additional supporting required to execute the TT payment. However, for country specific requirements are there i.e sanction counties, and currency specific requirements are there. Maybe you have to produce invoice or transport documents in such situation.	LC documents should be produced and present to Bank as per LC.

 

 

HOW TO SAFELY USE LC IN TRADE TRANSACTION / LC IS SAFE OR NOT?

 

·       LC is the safest mode in international trade transaction.

·       Even you are not aware about your supplier or customer you can deal with Bank without any hesitation to execute LC transaction.

·       Your foreign buyer gives you a copy of the letter of credit after it is opened in your name as beneficiary. Your bank can provide you with the original.

·       As you may be aware, a letter of credit is a frequent and safe method of payment for any firm, particularly in international trade.

·       Only you have to make sure when issuing the LC, all terms are agreed by both parties and this will ease your end process and execute the transaction without any dispute.

·       Mainly LC documents should be submitted by beneficiary without any discrepancy. If the documents got discrepant, power of payments will solely depend on the applicant. And additional charges of discrepancy fees will be applicable in that case.

 

LC DISCREPANCY

LC Discrepancy means the beneficiary fails to full fill the obligation of LC.

In case your LC documents got discrepant beneficiary need to contact applicant at the earliest and get the waive.

Always the applicant will always have more leverage over its bank than a seller in sending a SWIFT or telex follow-up to applicant bank to get the funds.

 

WHAT ARE THE TYPES OF DISCREPANCIES? / MOST COMMON LC DISCREPANCY

·       Late presentation of LC documents (lc discrepancy) 

This means, the exporter misses the deadline of LC. If LC says to present the LC documents within 21 days from Bill of Lading date, you need to submit the LC documents within 21 days from the date of BL

 

·       LC expiry (lc discrepancy) 

Means you submit LC documents after the expiry of LC. Usually, LC opens for specific period of time usually 3 or 4 months. However, this can be one year too. Mostly this will not go beyond one years unless it is revocable LC discrepancy. If you fail to meet the expiry deadline and then you will get the discrepancy as “LC expired”

 

·       Late delivery

In each LC discrepancy, there is a last date of shipment/ delivery. You need ship/ deliver the goods before this date. If you fail to do so, your documents will be discrepant.

 

·       Applicants authorized signature mismatched/ or missing

When applicant authorised, signature is compulsory in the LC, you need to check the signature with specimen signature provided by the applicant. And the same signature should be in placed in the specified documents as well.

When you fail to do so, you will have the lc discrepancy.

 

·       Typographical mistakes

This is more common mistake in LC documents, when you prepare LC documents typographical mistakes can be possible and the request will be lc discrepancy.

 

·       Photocopies not provided

if the LC says to provide certain number of photocopies you need to provide the same number copies to Bank. this will lead to lc discrapancy. 

 

·       Missing documents

As per the LC documents required, you need to produce all the LC documents

 

·       Description of goods mismatch

If any documents contain in difference wording than the description of goods mentioned in the LC, there will be a lc discrepancy.

 

·       Incoterms differences

Incoterms such as CFR/ CIF/ CNF and similar wording and can be wrongly use by the beneficiary.result will be lc discrepancy.

 

·       Invoice amount in figures and wording are difference

Another common mistake is the amount mismatch in figure and wording. Also over clam than the LC value. finally lc documents will get LC discrepany 

 

·       Providing wrong information.

If any information contradict with within the LC documents will be leas for LC discrepancy.

 

 

WHAT TO DO WHEN LC DISCREPANCY?

The beneficiary should perform the following actions as soon as the sale is completed, but before the LC is opened, to avoid conflicts when documents are presented under the letter of credit.

·       If the LC is not expired and LC presentation period is still there, you can recall the LC documents and recorrect the discrepancy and re submit immediately.

·       However, if the LC is already expired, immediately contact the applicant and email them the discrepancy advice to accept the LC documents

·       Contact the Bank to re check if you think the discrepancy is not valid.

 

 

HOW TO AVOID FROM LC DISCREPANCY? / HOW TO PREPARE LC DOCUMENTS WITHOUT LC DISCREPANCY

 

To avoid from lc discrepancy, you need to carefully follow the below steps, specially you need to outline the step-by-step timeline until the delivery / shipment of goods.

 

·       Read the LC top to bottom and highlight required details and important fact. .i.e last date of shipment, LC expiry date, presentation period etc

·       Note down the required documents under LC.

·       Check the LC documents before submit to the Bank whether all compliances are full filled.

·       If the LC value is high / material you may go for pre check with beneficiary Bank. However, make sure the charges involve with pre check.