7. Advising Bank checks the documents

If they comply with LC they send the documents to Issuing Bank and may pay the Seller in advance of being reimbursed by the Issuing Bank When the documents are received by the Advising Bank, they are checked, then if correct, they are sent to the Issuing Bank. When Documents comply with the Letter of Credit If the Advising Bank is happy after checking the documents that they comply with the Letter of Credit, then the process of payment to the beneficiary can occur. This process is dependent on where payment is stipulated in the original Letter of Credit. • If payment is stipulated to be at the Seller’s bank, then payment is released to the beneficiary on presentation and checking of the documents at the Seller’s bank • If payment is stipulated to be at the Buyer’s bank, then payment is released to the beneficiary only after the Issuing Bank has received the documents, checked them and then sent funds to the Advising Bank, who will then pass the payment to the Seller. When documents do not comply to the Letter of Credit Discrepancies can occur between the documents presented and the terms and conditions expressed in the Letter of Credit. If this does occur, the following courses of action are open to the Seller: • Correct the discrepancy within the original expiry date. If the Seller is able to make any amendments within the original expiry date and presentation period then this is acceptable. Any alteration to the documents must be authorized by the party that issued them. If possible a clean document should be obtained. • Ask for payment despite discrepancies. The Advising Bank can be asked to contact the Issuing Bank for permission to effect payment despite discrepancies in the documents. This can take a little time and the costs must be met by the Seller, however, it can produce a final result more quickly. • Send documents on ‘inspection’. This can occur within the security of the LC, but cashflow is seriously hindered and an unscrupulous Buyer may try to take advantage by offering a reduced price for a quick settlement against documents ‘as presented’. With documents ‘on inspection’ the bank should be requested to instruct the Issuing Bank that release of the documents to the Buyer is to be only against payment being authorized. Please Note: The above measures normally allow the Seller to retain control over the goods depending on the circumstances, as the Buyer often cannot take delivery without the documents, which are still in the Seller’s control. However the Buyer is in effect being asked if they still want the goods but are prepared to accept the discrepancies in the documents. They are still quite free to refuse. Common Discrepancies All mistakes cause extra work and are sometimes accompanied by additional charges. They can also lead to delays in receiving payment, price reductions and even the avoidance of liability by the Buyer altogether. To help avoid discrepancies, we have highlighted the common mistakes for the documents below. • Bill of Exchange Drawn incorrectly, or the amount differs from that of the invoice. Capacity of the signatories is not stated if required. Not endorsed or incorrectly endorsed. • Invoice Description of the goods differs from that in the LC. Not made out in the currency of the Credit. Amount differs from that of the LC. Amount differs from that of the Bill of Exchange. Prices of goods differ from those indicated in the LC. Price basis and shipment terms omitted. Extra charges included that are not specified in the LC. Is not certified, notarized or signed as required by the credit. Does not contain a declaration required under the LC. Buyer’s name differs from that mentioned in the LC. Is not issued by the Seller. Be consistent with each other. • Bill of Lading Not presented in full set when requested. Alterations not authenticated by an official of the shipping company or its agents. Is not clean, ie. carries remarks that the condition and/or the packaging of the merchandise is defective. Is not marked ‘on board’ when so required. ‘On board’ notation not dated. Is not endorsed by the Seller when drawn ‘to order’. Is not marked ‘freight paid’ as stipulated in the LC in respect of Cost & Freight and Cost Insurance & Freight contracts. Is made out ‘to order’ when the LC stipulated ‘direct to consignee’ (Buyer) and vice versa. Is dated later than the latest shipping date specified in the LC. Is not presented within 21 days after date of shipment or such time as specified in the LC. Description of goods other than that specified in the LC. Rate at which freight is calculated, and total amount, not shown when LC requires these details. • The following are only acceptable if expressly allowed in the Letter of Credit: Shipment ‘on deck’, ie. the goods are not stored in the hold. Shipment from a port or to a destination other than that stipulated. Presentation of types of Bills of Lading not specifically authorized in the LC, eg. a Charter party Bill of Lading, or a Forwarding agent’s Bill of Lading. • Insurance Amount of cover is sufficient. Does not include risks mentioned in the LC. Is not endorsed by the insured and/or signed by the insurers. Certificate or policy bears a date later than the date of shipment/dispatch, except where warehouse-to-warehouse is indicated. Incorrect description of goods. Alterations are not authenticated. Is not in transferable form when required. Carrying vessel’s name not recorded. Does not cover transshipment when Bills of Lading indicate it will take place. Please note: When the above documents and any other documents are required by a Letter of Credit, they should: • Comply with the stipulated conditions of the LC • Be properly signed • Have all alterations properly authenticated.

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