An International Magazine For and By LC Specialists
Kim Christensen Cautions Exporters

Editor's note: We know common discrepancies But what are the common causes for common discrepancies?  One cause of erratic documentation or late presentation may be LC itself. The LC  may contain such stipulations that may make compliance difficult or may delay compliance. Such stipulations are red flags. They are early warning signals. The exporter must monitor the warning signals. He must respond to the warning signals. He must take control action. That is, he should get the red-flagged LC amended or should reject it. But rejection and amendment are curative remedies. The exporter must use preventive remedy. He must prevent red-flagged LC. He must get green-flagged LC - a green-flagged LC gives green signal for accepting the LC for compliance. For getting  green-flagged he must negotiate feasible and flexible stipulations, during sales contract negotiation, which make compliance easy and error-free. He must get an LC for which his business has capability to comply with. Kim Christensen identifies the red flags. The exporter must use his checklist. It is free for you. The exporter's approach should be "correct documentation" and not correct the documentation. One way for correct documentation is getting correct LC. The other is get the LC corrected. Correct LC leads to correct documentation. Make a business policy to get green-flagged LC. Make a policy to examine the LC for red flags. To implement this policy use Kim's checklist and get paid. You have been using common discrepancies checklist for compliance preparation or rectification. Now start using red-flags checklist for LC terms negotiation and LC examination. The red-flags checklist is the first step in LC management. The discrepancies checklist is the next step. Both the steps together lead to correct compliance. The discrepancies checklist alone is not adequate. This step may not be effective if the first step is not taken. To control discrepancies you need to use both red-flags checklist and discrepancies checklist.  Kim Christensen aptly guides  you for  making LC productive of payment. OUR MISSION: "We must educate exporters. The exporters must get paid. Because the exporters are engines of economic growth".





The DC-Pro LC Market Intelligence Survey 2005 ( indicates that 56% of Export documents are discrepant at first presentation. It has often been discussed why this is so, and the "blame" is often placed on the beneficiaries. It goes without saying, that they have a role in this as well - but somehow there are more elements in play than that.


One example to that effect is the Sitpro ( "Report on the use of Export letters of credit 2001/2002", which  indicates that beneficiaries found that 48% of their LCs contained defects/errors, which would have made it difficult or impossible to secure settlement under the LC.


So one thing is the ability of the exporter to produce compliant documents - another thing is, that the same exporter is often on a "mission impossible": that due to conditions in the LC it is practically impossible for him to comply with the LC terms - meaning that the "guarantee" for obtaining payment under the LC is lost.



Securing payment via a structured approach


For the exporter wanting to secure payment under the LC for the shipped goods, it may seem like a jungle; there are so many rules, conditions, opinions, experts, checklists - not to mention all the "good advice".


The best way to go about it, is to structure the approach - i.e. identifying the relevant processes, and determine what measures to take.


In general there are 3 phases where the exporter can effectively influence the transaction to support his main goal: to get paid:


  1. The negotiation phase
    The most effective approach is to be active already when negotiating the contract with the buyer - and to "think" the LC into the contract; i.e. identifying the documents to be presented - and transforming the various conditions into documentary requirements suitable for the LC.

  2. The advising phase
    No matter how well an agreement has been made, it may always be a surprise to receive the LC. If is vital to read the LC thoroughly once received. 
    If there are conditions in the LC impossible to comply with - the LC should either be amended or simplyrejected.
    Although - in theory - only the exporter can know whether or not it is possible to comply with LC terms - history have shown that there are some "indicators", or early warning signs, that - if present in the LC - are likely to decrease the possibility to comply with the credit This is the requirements that are referred to here as "Red-flags".
    Below is a list of commonly seen "Red Flags
    " that may effectively ruin the exporters guarantee to get paid.

  3. At document presentation phase
    The presentations phase is the last resort, so the policy should be that all "Red-flags" have been "removed" at this stage.
    Common discrepancy checklists are available for use. One available to recommend can be found at the Sitpro web page on the following address:



Identifying the "Red Flags"


Below is a list of "Red flags" aiming to help the exporter identifying some of the pitfalls in the LC that may cause problems when producing the documents.




This guide is designed for the exporter to identify potential problems in the LC received - which in effect may result in a non-payment situation. It should however be noted, that the occurrence of one or more of the mentioned red flags does not necessarily in itself signal problems: It may be in the LC for good reason, and a part of the agreement


An example of the above is the "stop payment clause". This clause is often part of the LC text, and when exporters are confronted with it, it often appears that they are perfectly aware of this - and can inform that this is simply the way you trade with certain countries on certain commodities. The risk of having that clause in the LC has in other words been considered and accepted. So the list is useful for identifying potential problems, but it would be a wrong advise to simply reject any LC containing such a clause; it must be based on a careful case-by-case evaluation. 




Red Flag


Buyer accept

If the LC requires a document issued or signed by the buyer; the buyer may effectively stop or stall payment. The effect is that the exporter will loose control over the documents that are to guarantee payment

Stop payment clause

If the LC contains a clause that the buyer may effectively stop the payment - even after acceptance by the issuing bank, then the exporter is left with a LC that does not provide full guarantee.

If would probably be impossible to find a bank ready to add its confirmation to such LC

No transport document

If the documents presented do not contain a transport document , then whereabouts of the goods are uncertain.

Goods released to buyer

If the transport document is structured in such a way that the goods will be delivered to the buyer without the original transport document - or release of goods by the bank, then buyer will receive the goods regardless if the documents are refused.

This is e.g. in the situation where the required transport document is an airway bill consigned to the buyer.

A practical solution is that the Airway bill is consigned to the issuing bank.

contract integral part of LC

If the contract is an integral part of the LC, it may be unsure if documents can be refused based on contractual issues. This is not the purpose of the LC.

Proforma invoice integral part of LC

If the Proforma Invoice is an integral part of the LC, it may be unsure if documents can be refused based on contractual issues. This is not the purpose of the LC.

Spelling errors in names

If the LC contains errors in the names of the parties it should be amended. Even if insignificant, history has proven that such errors may create problems - and delay payment.

Errors in description of goods

If the LC contains errors in its description of the goods  the LC that should be amended. Even if insignificant, the history has proved that such errors may create problems - and delay payment.

LC containing "soft clauses"

There are numerous examples of such clauses. One example is where the issuing bank will check if the exporter and other parties are black listed on certain web pages before accepting/initiating payment. That would diminish the value of the LC for the exporter - and most likely make it hard to find a bank willing to add its confirmation.

LC requiring a straight B/L

If the LC requires a B/L issued to the buyer (not "to order") that would in some jurisdictions mean that the goods are delivered to the buyer without surrender of the original B/L

The consequence can be that the buyer will receive the goods regardless if the documents are refused

Errors in addresses

If the LC contains errors in the addresses of the parties mentioned in the LC that should be amended. Even if insignificant, the history has proved that such errors may create problems - and delay payment.

Drafting of the ISBP has proven that no "practice" exist here.

3rd party LC

There are situations where banks in the developed countries add confirmation from LC's issued by banks in the developing countries - to be advised to 3rd banks - in developed countries.

The History has proven that such confirming banks will apply a very strict compliance, and in practice it will be very difficult to comply with the terms and conditions of the LC. If it is not possible to comply with the LC terms, the confirmation fee is wasted - and documents are often sent on approval basis

Documents to be sent directly to other parties than nominated bank

If the LC requires that documents are to be sent to other parties than the issuing bank (e.g. insurance company, applicant or even issuing bank) - and copies to be part of the presentation, the exporter should be aware that this may have the consequence that the options to cure minor defects are lost.


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