Rejected Letters of Credit
Problems with rejected Letters of Credit?
The Unsworth team have significant experience with letters of credit formalities and are happy to help you prevent further cases of rejected letters of credit.
Be aware that the regulations of Letters of Credit (UCP 600) have been applicable since July 2007 and previous to this, the Letters of Credit (UCP 500) version was used. Many rejected letters of credit are due to the various differences between the UCP 600 and UCP 500.
These differences are:
- The number of articles decreased by 10 in the UCP 600
- Two new added articles: Article 2 “Definitions” and Article 3 “Interpretations”
These newly added articles help to bring clarity and precision to 3 rules.
The ten most common mistakes which result in rejected letters of credit:
- The amount and type of agreed forms and copies are not the consistent with those required by the letter of credit.
- Documents are not consistent.
- Transport documents are not correctly signed or prepared for a letter of credit as determined within the UCP regulations.
- The insurance document does not provide cover from the shipment date or fails to cover the risks necessary by the credit. The state in the letters of credit vary from the types of risk, measure of risk coverage or the currency.
- Drafts, like bills of exchange, are not presented as required by the letter of credit or are insufficiently prepared.
- Documents are not confirmed correctly.
- Description of goods on the commercial invoice is not consistent with the description on the letter of credit.
- Certificates are not signed, such as certificate of origin and certificate of inspection.
- Documents are not consistent with the letter of credit, other than the transport document, insurance document and invoice.
- The time schedule isn’t adhered to, due to delayed shipment or late presentation.
The International Chamber of Commerce now allows banks 5 business days after the day of presentation to review the letter of credit documents for inconsistency, and to either accept or reject it. If you are rejected letters of credit, the recipient bank will be advised of this rejection by the International Trade Finance and will wait for further instructions on how to deal with these documents. Rejected letters of credit means that goods cannot be released.
What to do when a letter of credit is rejected?
When the letter of credit is rejected as a result of non-compliance the buying party needs to wait until the selling party amends the rejected files. Without these documents the buyer can’t accept delivery of the goods and this can negatively impact the business of the buyer.
To help you prevent rejected letters of credit, we have five tips:
- Don’t do business with an importer who has no trustable and verifiable information.
- Don’t commit to offers which seem too good to be true or unrealistic.
- Don’t undervalue transaction risk factors.
- Don’t try to do everything in your own way, it’s better ask another third party to help.
- Seek help if you have a lack of knowledge in this area.