An Apparel Letter of Credit Refused on Document Discrepancies

The situation

The goods are ready, the shipment is made inside the latest shipment date, the vessel sails, and the seller presents documents under the credit. The examining bank replies with a notice of refusal. The goods description does not correspond with the credit wording, the bill of lading carries no on-board notation, the insurance is issued in the wrong currency, or an inspection certificate is signed by a party the credit did not name. Nothing is wrong with the cargo.

A documentary credit is examined on its documents alone, so a perfectly executed shipment can still be refused. Once refused, the bank holds the documents at the presenter's disposal, seeks the applicant's waiver, or forwards them on a collection basis, at which point the bank's payment undertaking has gone and the seller depends on the buyer's goodwill. Meanwhile the container arrives, cannot be released without the original bill of lading, and begins accruing storage and demurrage.

What made it difficult

A credit pays against compliant documents rather than against performance, so faultless shipping does not protect a defective presentation.

The examining bank has up to five banking days to check documents and the presentation period is commonly twenty-one days after shipment, so a late-discovered discrepancy may be impossible to cure inside the credit's validity.

Documents originate with the carrier, insurer, chamber of commerce and inspection body, and none of them can be compelled to reissue on the seller's timetable.

Apparel credits describe assortments by style, colour and size ratio, so the scope for a mismatch between invoice, packing list and credit wording is far wider than on single-line cargo.

How it is approached

The work begins when the credit arrives, not when the goods are ready. The credit is read against what can actually be produced: the exact goods description, every required document and the number of originals, consignee and notify wording, the freight and delivery-term statement, latest shipment date and presentation period, named ports, whether partial shipment and transhipment are permitted, and any clause depending on a document the seller does not control. Anything undeliverable becomes an amendment request before production ends.

Documents are then drafted to the credit's own words rather than to house templates. The invoice description corresponds with the credit, and while transport documents may describe goods in general terms under the applicable rules, no document may carry data conflicting with another. Quantity and amount tolerances are applied only where the credit allows them, and the transport document must show the on-board date, the named ports of loading and discharge, and the clean condition required. Internal consistency matters more than elegance.

Once a discrepancy is notified, the response is driven by the calendar. The first question is whether it is curable at all: a corrected invoice or packing list usually is, a carrier's correction to a bill of lading sometimes is, a missing third-party certificate often is not. The second is whether time remains inside both the presentation period and the expiry to re-present. If it does not, the choice between waiver, approval basis and documentary collection is made deliberately, with the cargo secured in parallel.

Prevention is a checklist and a second pair of eyes. The checklist is derived from the credit itself rather than from a generic template, and the pre-presentation check is done by someone who did not prepare the documents. Where the forwarder issues the transport document, its wording is agreed before drafting instead of corrected afterwards. Cargo control is part of the same discipline, so originals are not released and destination storage is planned in case the shipment has to wait.

Takeaways

• A credit pays against paperwork, so document preparation deserves the same rigour as the production schedule.
• Unworkable credit terms must be amended before shipment, because afterwards the only routes are waiver, collection, or a cure the calendar may not allow.
• Discrepancies repeat, so the durable fix is a checklist built from the credit's own wording and checked by someone other than the preparer.
• While the payment position is unresolved the cargo position must hold, which means originals stay unreleased and storage is arranged rather than improvised.

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