The bank refused our documents
Handling L/C discrepancies - how to read what got flagged, negotiating the discrepancy fee, the refusal notice deadline, and the pre-shipment document check

Hello, this is GreenFrog Seoul.

The shipment went out cleanly. The container is already at sea and the documents are with the bank. At that point it is easy to treat the money as collected. Then two days later the bank calls. "There are three discrepancies, so we cannot negotiate."

That is the moment a lot of people go blank. The goods are gone, the bill of lading is sitting with a bank, and no money is coming in. And the phrase the officer reads out — something like "B/L date after latest shipment date" — does not immediately tell you what it means, what you can still fix, or what is already past fixing.

That is what today is about. A discrepancy is not a note saying you filled a form in wrong. It is a signal that the obligation to pay never converted from conditional into unconditional. A letter of credit is built so that the bank pays against documents alone, which means that the moment your documents depart from the wording of the credit by even one character, the bank owes you nothing. The goods can have been built perfectly and shipped exactly on plan — that is not what the bank is looking at.

The full range of payment methods was covered in Episode 8, and deposit ratios and the point at which an L/C earns its keep in Episode 106. Today is about what happens when you are actually using that L/C and you get stopped at the bank counter.

There is a figure the industry quotes often: more than half of all documents presented under a credit for the first time draw at least one discrepancy. What we see day to day feels about the same. That number is not evidence that people are bad at their jobs. Clearing dozens of fields at once in an examination that matches text character by character is genuinely hard. Which is why the skill shows up not in whether a discrepancy happens, but in what you do the hour after it does.

1. There are two places where negotiation gets blocked

Start with the route the documents travel. Without that sequence in your head, you cannot tell which stage the bank is talking about.

You present documents to your own bank at home. Formally it is the negotiating bank; on the desk, everyone just calls it the nego bank. That bank reviews the documents, and if it judges them clean, it pays you first. Then it sends the documents on to the issuing bank overseas and collects. The point at which you touch money is that first step.

Which means there are two places where the process can jam.

Getting caught at the first stage is by far the better outcome. The documents are still in the country, and if there is presentation time left after shipment you can correct them and file again. Once a refusal comes back from the second stage, unwinding it is physically hard. The documents are already overseas and the presentation period has usually run out.

So if your negotiating bank caught a discrepancy, you were done a favor. From that bank's point of view, buying discrepant documents and then getting refused by the issuing bank puts it in the position of clawing money back from you, so filtering early suits everybody. How strict that review is varies bank to bank, though. Loose reviews that wave documents through and then blow up at the issuing bank do happen.

2. The discrepancies that actually come up

In theory the list of possible discrepancies has no end. In practice the ones that get flagged cluster into a handful. Sorting them by character shows you which response applies.

The three rows marked "No" at the top are the real problem. Everything else usually clears within a few days, but those three can only be fixed by turning back the clock, so redrawing the documents does nothing.

Why date discrepancies cannot be fixed

Say the credit names 20 September as the latest shipment date and the B/L came out dated 22 September. The carrier issued that document on the 22nd, and there is no way to change the date. Asking the carrier to restate it as the 20th is document forgery. That direction is closed, permanently.

Presentation timing works the same way. Under UCP 600, where the credit says nothing else, documents must be presented within 21 days of the B/L date, and separately within the credit's expiry. In practice, credits often cut that to 15 or 10 days. Miss it and the documents can be flawless and still fail as "late presentation."

Date discrepancies, then, are a management problem rather than a response problem. And here is where things go wrong most often in real life. When the factory misses its release date the shipment slips too, and everyone forgets to get the shipment date in the credit extended along with it. Attention goes entirely to the production delay and the banking deadline drops out of view. Put "request L/C amendment" on the list of things you do the day a factory delay lands in your inbox. Delivery delays as a whole were covered separately in Episode 107.

Goods description is the most common of all

The credit says "LADIES COTTON KNITTED T-SHIRT" and the invoice says "LADIES COTTON T-SHIRT (KNITTED)". Same product, same meaning. Flagged as a discrepancy.

Bank examination looks at text, not meaning. The description of the goods must not conflict with the credit, and once the word order shifts or a bracket moves, the examiner stops deciding and writes it up. So the invoice description is not a place to be creative. Copy the wording of the credit and paste it. Carry the capitalization across too and there is nothing left to argue about.

3. A refusal notice has to meet specific requirements

An issuing bank cannot refuse documents any way it likes. UCP 600 puts fairly specific constraints on the refusal procedure, and those constraints become your defensive line.

The fourth row gets used constantly. The issuing bank has to list every discrepancy in a single notice and cannot come back later saying it has found another one. So when a refusal notice arrives, count the items. If something surfaces afterward that was not on that list, the argument for it is already too late.

The first row matters just as much. The five banking days run from the day after presentation and count in banking days in the issuing bank's country. Drop National Day or Chinese New Year into the middle and the wait can feel like more than ten days. If that window closes with no notice at all, the bank is in the position of having to treat the documents as taken up. So write the presentation date and the expiry of that window on a calendar, and if the deadline is approaching in silence, have the negotiating bank query the status. How Chinese holiday calendars interact with production and shipping plans is laid out in Episode 44.

4. Who pays the discrepancy fee

Once a discrepancy is confirmed, the issuing bank takes a discrepancy fee. The amount is typically USD 50 to 150 per case, varying with the bank and the currency. The sum itself is not large; whose account it goes to is what gets argued about.

Most credits carry a line like this: "Discrepancy fee of USD 100 for account of beneficiary." Beneficiary means you, the exporter. Where that line exists, it comes off the proceeds and that is the end of it.

The real issue is structural rather than financial. Paying the discrepancy fee does not cure the discrepancy. The fee is consideration for extra handling, nothing more; whether payment happens still depends on whether the applicant — your buyer — accepts the discrepancy. From there the sequence runs like this.

• The issuing bank flags the discrepancies and tells the buyer. "These are the defects; will you take them?"
• If the buyer waives, the bank pays. The discrepancy fee comes off the proceeds.
• If the buyer refuses, the bank does not pay. The documents stay with the bank or go back.
• If the buyer sits on the question, the money sits still with it. This is the most maddening stretch in practice.

Between the second and the fourth is where the negotiation lives. A buyer who wants the goods usually waives — no documents means no customs clearance, so the pressure is on them too. A buyer whose market has turned, or who has simply changed their mind, gets a convenient justification. What makes a discrepancy dangerous is not the hundred dollar fee. It is that it hands your buyer a legitimate reason to say no.

5. The routes available once a discrepancy lands

When a refusal notice arrives you have roughly five options. Which one fits is decided by the nature of the discrepancy and the time you have left.

The top row is the cleanest. Where the discrepancy is fixable — a mistyped description, a quantity mismatch between documents — and time is left, redrawing the documents and filing again is the textbook answer. Just check whether any of the documents take time to reissue. A certificate of origin or an inspection certificate is tied to the issuing body's schedule and can cost you several days.

The bottom row, negotiation under an L/G, is the emergency card, and you need to understand exactly what it is. The negotiating bank pays you up front against an undertaking that says "if the issuing bank refuses later, I will give the money back." The cash arrives fast, but the risk has not gone away — it has been deferred. Use it when the buyer is certain to waive and only the procedure is dragging. Use it while the buyer's attitude is still unclear and you will get a repayment demand.

Keep the switch to collection for last

When an unfixable date discrepancy has landed and the buyer will not waive, someone raises switching to collection. You effectively abandon the credit, send the documents through a bank, and hand them over when the buyer pays.

The problem with that route is that the bank's payment undertaking is gone. If the buyer does not pay, the goods sit at the destination port and the documents sit at a bank while time passes. Demurrage accrues through all of it. At tens of dollars a day, a month turns into a number you notice. The mechanics of container demurrage and detention are covered in detail in Episode 96.

So before you move to collection, have an actual conversation with the buyer. Find out whether they intend to waive, and if not, why. Where the goods are fine and the buyer has somewhere to sell them, a route usually opens. Where the buyer never wanted the goods in the first place, the discrepancy is only the surface reason, and at that point planning how to dispose of the cargo matters more than redrawing documents.

6. Finishing the document check before shipment

If you have read this far you can guess the conclusion. Every tool available after a discrepancy has landed costs something. The real fix sits earlier.

Between the moment the credit reaches you and shipment, there are two checkpoints.

First: the day the credit arrives

This is the most important step and the one most often skipped. When the credit lands, read the terms, and if it contains a condition you cannot meet, request an amendment right there. Changing anything once shipment has started is far harder.

• Is the latest shipment date a date your production and booking schedule can actually hit
• Do the expiry date and presentation period leave room to prepare the documents
• Does the list of required documents include anything you cannot obtain
• Does it require a document the buyer issues, such as an inspection certificate
• Can the goods description be transferred verbatim into your invoice format
• Do the partial shipment and transhipment permissions match your shipping plan
• Can the insurance terms and insured amount be met by the cover you can buy
• Does the amount carry a tolerance such as plus or minus 5%

The fourth line is the dangerous one. Some credits call for an inspection certificate signed by the buyer's own inspector. Accept that and whether you get paid moves into the buyer's hands. If they will not sign, you cannot produce the document, and without the document there is no negotiation. You are using a credit to obtain a bank's payment undertaking, and that one clause switches the undertaking off. Ask for it to be struck at the issuance stage, or changed to a certificate issued by a third-party inspection body. Using third-party inspection was covered in Episode 47.

Second: just before shipment, at the draft document stage

Before the B/L comes out, put your draft invoice and packing list side by side with the credit and compare them. It takes thirty minutes, and the discrepancy rate between companies that do this and companies that do not is not close.

The second row is the most common trap of all. Once the goods are actually packed, gross weight shifts slightly from the quoted figure, and many exporters correct the packing list to the measured value and leave the invoice as it was. That fails immediately as an inconsistency between documents. Fix one document and you have to look at the rest. How to prepare trade documents generally is set out in Episode 40.

The last row turns up more often than you would think. If the insurance policy is dated later than the B/L, that is a discrepancy, because it reads as having insured the goods after shipment. What usually happened is that cover was arranged in advance and the document only came back later, inverting the dates. For cargo insurance in practice, see Episode 57.

7. Three real patterns

Anonymized versions of the cases we meet most often in consultations. Amounts and dates are illustrative.

Case 1 — a B/L two days late, USD 30,000 frozen

Latest shipment date 20 September, credit value USD 30,000. Factory release ran three days over and the B/L came out dated 22 September. An unfixable discrepancy.

This one resolved through a buyer waiver. It was peak season volume, so the buyer needed the goods too, and it mattered a great deal that the exporter had flagged the delay before shipment. A USD 100 discrepancy fee came off and the credit was paid. The lesson is that the leverage to obtain that waiver came not from document skill but from having given notice in advance. A late B/L that simply turns up with no warning makes buyers defensive.

Case 2 — one word in a description, five days lost

The credit described the goods as "STAINLESS STEEL VACUUM BOTTLE 500ML". The invoice read "STAINLESS VACUUM BOTTLE 500ML" — STEEL dropped. One word.

The negotiating bank caught it at the first stage, so it never reached the issuing bank. The invoice and packing list were reissued and re-presented two days later, and because the certificate of origin carried the same description it had to be reissued too, costing another three days. Five days in total, and collection slipped by exactly that. The damage showed up in delayed cash turnover, not in fees. The working capital angle is covered in Episode 48.

Case 3 — a buyer using the discrepancy as cover

The most awkward pattern. The insured amount came in slightly below what the credit required. A fixable discrepancy, except that the presentation period had already run and re-presentation was closed.

A waiver request went to the buyer and no reply came back. By then the market price for that product had fallen. The buyer withheld payment citing the discrepancy and came back asking for a price reduction; the parties eventually settled on 5% off and switched to collection to get the money out. The goods were already at the destination port and demurrage was running.

A few percentage points of insurance shortfall did not create a 5% discount. The discrepancy handed the buyer a bargaining chip, and the buyer used it. The same discrepancy gets waived without comment when the market is strong. So how dangerous a discrepancy is comes down not to the weight of the defect but to where your buyer happens to be standing that week. You are betting your proceeds on a variable you do not control.

8. Common mistakes

Things that keep coming up in letter of credit consultations:

• Receiving the credit and never reading it through, then discovering an unmeetable condition too late
• Factory release slipping without requesting an amendment to the shipment date
• Typing the goods description across by hand and changing word order or spelling
• Correcting the packing list to measured values and leaving the invoice weight alone
• Counting the presentation period from the completion of loading instead of the B/L date
• Assuming the UCP default of 21 days when the credit set a shorter period of 10 or 15 days
• Accepting a clause requiring a buyer-issued inspection certificate as written
• Never checking whether the insurance policy date fell after the B/L date
• Working from a phone summary of the issuing bank's refusal without obtaining the original message
• Not counting the discrepancies listed in the refusal notice, then accepting a later addition at face value
• Never calculating the expiry of the five banking day examination period, so an overrun goes unnoticed
• Negotiating under an L/G while the buyer's position is still unclear, then facing a repayment demand
• Switching straight to collection when re-presentation was still available, giving up the bank undertaking voluntarily
• Asking the carrier to backdate the B/L — that is the forgery zone
• Repeating the same discrepancy on the next shipment, for want of a checklist

9. L/C document check checklist

The day the credit arrives

• Confirmed the latest shipment date is achievable on the production and booking schedule
• Marked the expiry date and the presentation period on a calendar
• Confirmed every required document can actually be obtained
• Confirmed no document requires the buyer to issue or sign it
• Copied the goods description wording into the invoice template and saved it
• Checked partial shipment and transhipment permissions against the shipping plan
• Confirmed the insurance terms and percentage with the insurer
• Checked whether an amount tolerance is included
• Listed the clauses needing change and requested an amendment

Just before shipment

• The invoice description matches the credit character for character
• Quantities and weights agree across invoice, packing list and B/L
• Quantity x unit price ties to the total and sits within the credit amount
• Consignee and notify party are written as the credit specifies
• Port of loading and port of discharge match the credit
• Freight marking is consistent with the Incoterms
• Confirmed the number of B/L originals required and whether endorsement is needed
• Insurance cover starts on or before the shipment date
• Checked the certificate of origin description, signature and seal
• Document dates run in the correct order
• Obtained a pre-check from the bank

Immediately after a discrepancy notice

• Obtained a copy of the original refusal message
• Recorded the discrepancies listed and how many there are
• Classified each discrepancy as fixable or not
• Calculated the days remaining on the presentation period and the expiry
• Confirmed whether the five banking day examination limit was observed
• Confirmed what the notice states about disposal of documents, held or returned
• Explained the situation to the buyer and asked whether they will waive
• Compared the time needed for re-presentation, cable negotiation and switching to collection

Closing - do not build the documents after the goods

The reason to use a letter of credit is safety. A bank stands in the middle and guarantees payment as long as the documents conform, which lets you work with a buyer you have never met. That guarantee comes with a condition attached: the documents have to conform.

The way it goes wrong is almost always the same. Everything goes into making the goods, and the documents get written in one batch after shipment is done. Then the dates run out of order, measured weights disagree between documents, and descriptions get typed from memory. Treat documents as an accessory that follows the goods and this is what you get. In a credit transaction the bank is looking at documents, not goods, so the order has to be reversed.

What we suggest is simple. On the day the credit arrives, paste the goods description into your invoice template. Put the shipment date and the presentation deadline on a calendar. And before the B/L comes out, spend thirty minutes with the draft documents next to the credit. Those three habits alone cut discrepancies sharply. It is not a special skill, it is a question of sequence.

GreenFrog Seoul reviews credit terms and pre-checks shipping documents for trades with Chinese factories, and works through the response when a discrepancy does land. If a refusal notice has already arrived, we start with classifying the discrepancies and calculating the time you have left; if the credit has not been opened yet, we work with you from the term negotiation stage.