Letter of Credit Documents and Rejection: How to Obtain an LC and Avoid Discrepancies

Introduction

The cargo has been loaded, the vessel has sailed, and the seller’s documents are with the bank. A few days later the bank replies: the presentation is discrepant. The bill of lading shows a port that does not match the credit, or the invoice describes the goods differently from the LC. A payment that looked secure now depends on the buyer agreeing to waive the problem, sometimes in exchange for a discount.

Most companies think of a letter of credit as a payment guarantee. In practice, the bank’s promise holds only when the documents comply. Letters of credit are rarely refused because the trade went wrong. Far more often, the documents describe the same trade in slightly different ways.

This post covers how a company obtains a letter of credit, which documents are typically presented, how banks examine them, the most common discrepancies, what happens after a refusal, and the fee types that make up the cost of an LC. The examples come from grain trading, but the mechanics apply to any commodity.

What a Letter of Credit Discrepancy Actually Means

A discrepancy is any point where the documents presented under a letter of credit do not comply with the credit’s terms, with the applicable rules, or with each other. Most commercial letters of credit are issued subject to UCP 600, the ICC’s Uniform Customs and Practice for Documentary Credits. It defines a complying presentation as one in accordance with the terms of the credit, the applicable provisions of the rules, and international standard banking practice.

Two principles explain why this matters. UCP 600 states that banks deal with documents, not with the goods those documents relate to. It also treats the credit as a transaction separate from the sales contract. If the cargo arrived in perfect condition but the documents do not comply, the bank has no obligation to pay.

How a Company Obtains a Letter of Credit

The applicant is usually the buyer. It asks its bank, the issuing bank, to issue a credit in favor of the seller, the beneficiary. Three things need to be in place first.

1. A credit decision by the issuing bank

Issuing a letter of credit is a credit decision. The bank takes on its own obligation to pay the seller against a complying presentation and relies on the applicant to reimburse it. The International Trade Administration’s guidance describes the first step simply: the importer applies to its bank, which evaluates the importer’s creditworthiness.

In general terms, the bank looks at the applicant’s financial position, trading history, experience with the goods and counterparty, and the size and tenor of the credit. For a company without an existing trade finance relationship, this is often the longest part of the process. It runs alongside a compliance review of the transaction itself, covering the goods, parties, countries, and sanctions exposure. A company whose onboarding file is already coherent starts from a stronger position. The documents banks check at that stage are covered in the post on bank account documents for trading companies.

2. An LC application that matches the sales contract

The applicant completes the bank’s LC application: amount, expiry date, latest shipment date, ports, goods description, and the documents the seller must present. ISBP 821, the ICC’s International Standard Banking Practice for the Examination of Documents under UCP 600, states that many problems at the examination stage could be avoided through careful attention to detail in the credit application. It also states that the applicant bears the risk of any ambiguity in its instructions. Buyer and seller should therefore agree, before signing the contract, which documents will be required, who issues each one, what data each must contain, and how long the seller will have to present them.

3. Advising and, where needed, confirmation

The issuing bank sends the credit to an advising bank in the seller’s country, which checks its authenticity and passes it on. A seller concerned about the issuing bank or the buyer’s country can ask for confirmation, where a second bank adds its own undertaking to honor a complying presentation. When the seller receives the credit, it should check every term against the contract and against what its logistics and inspection partners can actually produce. Under UCP 600, an amendment needs the agreement of the issuing bank, any confirming bank, and the beneficiary, so problems are best fixed before shipment.

The Documents Typically Presented

UCP 600 does not prescribe which documents a credit must require. Buyer and seller agree on them and write them into the credit. For a seaborne grain cargo, a typical set includes:

• Commercial invoice. Under article 18, it must appear to be issued by the beneficiary, be made out in the name of the applicant, and be in the currency of the credit. Its goods description must correspond with the credit.
• Transport document. For bulk grain, usually a bill of lading, often a charter party bill of lading (articles 20 and 22). Other modes have their own articles, such as article 19 for multimodal transport.
• Insurance document, when the seller insures the cargo, for example under CIF terms. Under article 28, cover notes are not accepted and cover must be effective no later than the date of shipment.
• Certificate of origin, quality and weight certificates from an inspection company, and a phytosanitary certificate.
• Draft (bill of exchange), if the credit requires one.

ISBP 821 has dedicated sections for each of these, including weight lists and inspection, quality, and phytosanitary certificates. The practical point is that the seller produces only part of the set. The vessel’s master or agent signs the bill of lading, an inspection company issues the certificates, and a government authority issues the phytosanitary certificate. Each needs to see the credit’s requirements before issuing its document.

How Banks Examine the Documents

Article 14 of UCP 600 sets the standard for examination:

• Banks examine a presentation “on the basis of the documents alone” to determine whether it appears on its face to be complying.
• Each examining bank has a maximum of five banking days following the day of presentation to decide.
• Data need not be identical across documents, but must not conflict with the credit or other documents.
• Outside the commercial invoice, the goods may be described in general terms that do not conflict with the credit.
• Original transport documents must be presented no later than 21 calendar days after shipment, and never after the credit expires.

The ICC Banking Commission’s 2022 briefing on discrepancy rates points out that the term “strict compliance” does not actually appear in UCP 600. ISBP 821 gives examples of what is not a valid refusal: a missing or mistyped credit number on a document, provided all stipulated documents are received, unless the importing country requires that number and the credit says so.

The Most Common Discrepancies

The ICC’s Technical Advisory Briefing No. 3 (2022) estimates that 65–80% of documents presented under documentary credits worldwide are refused on first presentation. It names timing as the most common cause, followed by poorly prepared documents. In grain trading, these patterns usually look like this:

Timing. Shipment after the latest shipment date, or documents reaching the bank after the presentation period or expiry. With several issuers involved, a 21-day window can run out quickly.

Conflicting data. The weight certificate shows a different quantity from the invoice, or the shipper’s details differ between the bill of lading and the certificate of origin.

Goods description. If the credit specifies a crop year, grade, or protein level and the invoice leaves it out, the presentation is discrepant.

Quantity tolerances. Article 30 allows up to 10% where the credit says “about” or “approximately”. For goods not counted in packing units or items, such as bulk grain, a 5% quantity tolerance can apply if drawings stay within the credit amount. Traders sometimes assume a tolerance the credit’s wording does not allow.

Ports, notations, and signatures. A port of loading or discharge that differs from the credit, a missing or incorrect on-board notation, or a bill of lading where the signatory’s capacity (master, owner, charterer, or agent) is unclear.

Insurance dated after shipment, without evidence that cover was effective from shipment.

Routine errors: missing documents, unauthenticated alterations, and missing endorsements.

The ICC also notes that some refusals are not valid at all, owing to an examiner’s limited knowledge of the rules or ambiguous credit terms. Any refusal that seems unclear is worth questioning before the documents are corrected.

What Happens After a Refusal

Article 16 of UCP 600 sets the procedure. Knowing it helps a seller respond quickly and avoid losing rights by accident.

The notice of refusal

A refusing bank must send a single notice to the presenter. It must state that the bank is refusing, list each discrepancy, and say what is happening to the documents: held pending the presenter’s instructions, held until the applicant waives, returned, or handled under earlier instructions. The notice must go by telecommunication, or other expeditious means, no later than the close of the fifth banking day following the day of presentation. An issuing or confirming bank that fails to follow article 16 is precluded from claiming that the documents do not comply, so the date and content of the notice are worth checking.

Waiver by the applicant

The issuing bank may, at its sole judgment, ask the applicant to waive the discrepancies. This does not extend the five-day examination period. According to the BAFT guide to letters of credit, the issuing bank is not obliged to accept a waiver even if the buyer gives one. The same guide warns that some applicants use discrepancies to negotiate a discount in return for waiving. At that point, a bank-backed payment has become a commercial negotiation.

Correcting and re-presenting

The seller can correct the documents and present them again. The issuing bank is obliged to pay only if the corrected documents comply and arrive before the credit expires. Corrections must come from each document’s original issuer, such as an inspection company or a vessel’s agent, so the seller needs a realistic margin before both the presentation deadline and expiry. If a term clearly cannot be met, the safer route is an amendment before shipment, not a presentation that relies on a promised waiver.

Letter of Credit Fees: What Companies Pay For

There is no single price for a letter of credit. The cost is a set of separate charges levied by different banks at different stages. Each bank sets its own tariff, and the contract and credit decide who pays which charge. The International Trade Administration notes that LCs can be relatively expensive because of bank fees and advises exporters to ask about costs before the importer applies.

The main fee types are:

• Issuance fee, charged by the issuing bank to the applicant. It generally reflects the amount, the validity, and the bank’s view of the applicant.
• Advising fee, charged by the advising bank for authenticating and passing on the credit.
• Confirmation fee, charged by a confirming bank for adding its undertaking. It reflects the risk of the issuing bank and its country, and the tenor.
• Amendment fee, charged each time the credit changes.
• Discrepancy fee, charged when a presentation is discrepant. An ICC Opinion cited in the 2022 briefing states that if an issuing bank intends to deduct one, the credit should say so and indicate the fee.
• Examination, payment, negotiation, and communication charges, which many banks list separately.

Under UCP 600 article 37, a bank instructing another bank is liable for that bank’s charges, and if charges for the beneficiary’s account cannot be collected, the issuing bank remains liable. The allocation of charges is worth negotiating explicitly.

A discrepancy costs more than its fee. The ICC briefing names delayed settlement or financing and higher bank fees; the BAFT guide adds communication costs, lost interest, and administrative work. On a grain cargo with thin margins, avoiding one discrepant presentation can be worth more than a lower issuance fee.

How to Reduce Discrepancies Before the Cargo Ships

1. Agree the document list in the sales contract, with each document’s issuer, content, and presentation window.
2. Keep the credit simple. Avoid non-documentary conditions and unnecessary documents.
3. Check the credit against the contract as soon as it arrives, and request amendments before loading.
4. Brief every document issuer (inspection company, vessel’s agent, insurer, phytosanitary authority) on the credit’s requirements.
5. Leave time for corrections before the presentation deadline and expiry.
6. Leave out data the credit does not ask for, since it can conflict with another document.
7. Check the full set as one file: quantities, dates, ports, names, and descriptions across all documents.

A full walkthrough of one grain transaction, from contract to payment, is in the post on letters of credit for grain trade.

How Bienrock Supports Grain LC Transactions

Bienrock is a consulting company based in Geneva, Switzerland. It is not a bank, does not hold client funds, and does not issue, confirm, or finance letters of credit itself. It acts as an intermediary between trading companies and financial institutions.

Bienrock’s trade finance work, including letters of credit, covers grain trading only. Companies trading electronics or vehicles work with Bienrock on bank accounts for their payment flows, not on trade finance.

For grain traders, the work starts with the case: the counterparties, how the cargo moves, and which documents the transaction will produce. The case is then presented with full disclosure to decision-makers, not front desks, at institutions whose risk appetite covers the trade. Bienrock works with 200+ banking partners across Switzerland, the UK, the EU, the UAE, Singapore, Hong Kong, Turkey, and Africa. The credit decision, the LC terms, and the fees remain with the financial institution.

FAQ

How do I obtain a letter of credit as a buyer? You apply to your bank as the applicant. The bank assesses your creditworthiness and the transaction, and if it agrees, you complete an LC application with the amount, dates, ports, goods description, and required documents, matching the sales contract.

How long does a bank have to examine LC documents? Under UCP 600 article 14, each examining bank has a maximum of five banking days following the day of presentation.

Can a discrepant presentation still be paid? Yes. The seller can correct and re-present before the credit expires, or the buyer can waive the discrepancies. The issuing bank is not obliged to accept a waiver, and the seller may face pressure to accept a lower price.

What fees are charged on a letter of credit? Typically issuance, advising, confirmation, amendment, and discrepancy fees, plus examination, payment, and communication charges. Each bank sets its own tariff.

Does Bienrock arrange letters of credit for electronics or car trading? No. Bienrock’s trade finance work covers grain trading only. Electronics and vehicle traders work with Bienrock on bank accounts for payments.

Conclusion

A letter of credit is only as secure as the documents presented under it. Most refusals come from a gap between what the credit asks for and what the seller and its document issuers produce, and that gap is usually set when the credit is drafted. Agreeing the document set in the contract, checking the credit on arrival, and reviewing the presentation as one file prevent most discrepancies, along with the fees, delays, and price pressure that follow them.

If your company trades grain and is preparing a letter of credit transaction, or has had documents refused, start with a case assessment at bienrock.ch.