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Many suppliers ask their importers for arranging a letter of credit. This can be considered as a payment guarantee from the importer’s bank. It is intended for ensuring that the seller can ship the consignment and is confident that the importer will pay for the consignment being shipped later.
But the LC payment guarantee is somehow conditional and rely on specific documents that has to be provided by a given date. An LC becomes a discrepant LC if the supplier fails to meet the mentioned deadline or provides documents which as not relevant enough as per the specified ones. Each failure is termed as a discrepancy.
This is a usual condition that and also quite normal.
Some banks, even experiences high percentage of discrepancy rates on the LCs that they have to process. The typical reason behind this is that LCs might have involvement of complex conditions involving for the provision of many documents being produced by certain parties within short timeframes.
A discrepant LC is not a big thing, generally occurs. These are some important principles:
Below mentioned three things can happen:
Yes, for sure. A letter of credit which is discrepant will no longer includes any kind of active obligation that has to be paid. However, it has turned within a documentary collection.
Yes. Trade examples shows that LCs might fail when the communication between the importer and the seller has broken down, or even if the importer has changed the mind on the related transaction.
The LC provides certain protections, even if they are discrepant:
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