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RULES OF FILLING IN DOCUMENTS WHEN ACTING LETTERS OF CREDIT. TYPICAL MISTAKES
- First of all, it is necessary to note, that nominating bank under the letter of credit (the side responsible for observance of conditions of the letter of credit) realises examination of the documents, adhering to three rules:
- Correspondence of the documents to the conditions of the letter of credit;
- Correspondence of the documents one to another;
- Correspondence of the documents to UCP if it is stated in the letter of credit.
- The letter of credit and the commercial agreement represent two separate dealings and the requirements indicated in the one of them, are not distributed to another! In case of discrepancies in the description of the parties, the goods, addresses etc., indicated in the letter of credit with those in the contract, it is necessary to remember, that the payment of the goods is made according to the conditions of the letter of credit. Hence, to receive payment under the letter of credit, it is necessary to present the documents which were made out according to conditions of the letter of credit, not the contract. Misunderstanding of the given question can result in impossibility of customs registration of the goods or receiving of payment under the letter of credit. With the purpose of avoidance of different interpretations and disputes between the parties, it is recommended to issue the text of the letter of credit as appendix to the contract during preparation of the draft contract and the letter of credit.
- Also it is necessary to note, that the documents should be presented to the bank before the latest date for document's presentation (Period of presentation). If such a term in the letter of credit is not stated, it is considered, that documents should be presented during
21 days from the date of shipment, but in any case - before the expiry of the letter of credit (the date of issuing transport document is considered to be the date of shipment, instead of date of a mark of a customs or other services). Thus the presentation date is considered to be the date of presentation of documents to the nominating bank, so it is necessary to take into account the term of transfer of documents by mail to the nominating bank. Besides sometimes in the letters of credit (as a rule stand-by) the term up to which documents can not be presented is stated.
- Observance of the status of the document. The document described as an original, should be marked as an original and signed, when necessary. The document can be signed by handwriting, by facsimile, by perforated signature, by stamp, by symbol, or by any other mechanical or electronic method of authentication. The document described as a copy, should be marked as a copy, or not marked as an original. Signature is not required on a copy. Also it is necessary to note, that the copy made out with using of reprographic systems, is taken as a photocopy. It becomes a copy from the moment of assurance by the institution, which has issued it. If the assurance by embassy of country of the Buyer is required, it is necessary to find out, whether there is such embassy in a city, in which exactly. The quantity of represented documents too matters, sometimes extra copies are considered as discrepancies of the documents.
- The description of the goods:
- in the commercial invoice - should be detailed and fully comply with the conditions of the letter of credit;
- in other documents - may be brief; should coincide one another and not contradict the description of the goods in the commercial invoice;
- in all the documents - should correspond to the conditions of the letter of credit and UCP (if subordination to UCP is stated in the letter of credit).
- In case the partial payments for the goods are provided, it is necessary, that in the letter of credit partial shipments were also allowed (Partial shipments: allowed).
- In case the parties stipulate necessity of marks on different documents, for example "with a mark of a customs on issue" or "export permitted" or mark on the bill of lading "clean on board", it entails necessity of presence in the documents of such marks, instead of presence of a stamp which denotes it, as the oval seal of a customs service means the permit for entrance or exit from country.
- At the issuance of the commercial invoice it is necessary to remember, that the names of the parties stated in it should coincide with names of applicant and the beneficiary in the letter of credit.
- At the issuance of the bill of lading:
- usage of the conditions contradicting one another is prohibited, for example the simultaneous statement of the delivery term EXW and mark "FREIGHT PREPAID".
- presence of the corrections not assured by signature of institute, which has issued it;
- the nomenclature of the goods should completely coincide with the description of the goods in the letter of credit;
- absence of the captains remarks is obligatory if in the description of documents in the letter of credit the clean on board bill of lading is required;
- there should necessarily be a signature and the statement of a surname and the initials of the carrier / the agent of the carrier;
- the name of consignee should coincide with those, stated in the letter of credit.
- The Buyer should know, that at the shipment of the goods on the conditions CIF the bank will not demand presentation of the insurance policy from the Supplier if only those will not be stated in the list of documents against which there will be effected a payment under the letter of credit.
- The supplier should know, that:
- on delivery of the goods on conditions CIF he can present documents in the bank not waiting issuing of the insurance policy if only those will not be stated in the list of documents against which there will be effected a payment under the letter of credit.
- on delivery of the goods on conditions DAF he can present documents in the bank not waiting transportation to the goods to the point of destination.
At issuance of the insurance policy:
- If the insurance document indicates that it has been issued in more than one original, all the originals must be presented unless otherwise authorised in the Credit;
- Unless otherwise stipulated in the Credit, banks will accept an insurance certificate or a declaration under an open cover pre-signed by insurance companies or underwriters or their agents. If a Credit specifically calls for an insurance certificate or a declaration under an open cover, banks will accept, in lieu thereof, an insurance policy;
- Unless otherwise stipulated in the Credit, or unless it appears from the insurance document that the cover is effective at the latest from the banks will not accept an insurance document which bears a date of issuance later than the date of loading on board or dispatch or taking in charge as indicated in such transport document;
- Unless otherwise stipulated in the Credit, the insurance document must be expressed in the same currency as the Credit;
- Unless otherwise stipulated in the Credit, the minimum amount for which the insurance document must indicate the insurance cover to have been effected is the CIF or CIP value of the goods, as the case may be, plus 10%, but only when the CIF or CIP value can be determined from the documents on their face. Otherwise, banks will accept as such minimum amount 110% of the amount for which payment, acceptance or negotiation is requested under the Credit, or 110% of the gross amount of the invoice, whichever is the greater.
The bank can consider as discrepancies if the certificate, which under conditions of the letter of credit should be issued by the independent surveyor, will be issued by the beneficiary.
V.A. Nomerovanny, Y.V. Vitjuk, Odessa branch of Privat-bank
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