UCP, Letter Of Credit

LETTER OF CREDIT RULES

The rules for Letters of Credit, the UCP (Uniform Customs and Practices for Documentary Credits), states, “The description of the goods, services or performance in a commercial invoice must correspond with that in the credit” (Article 18 c). Banks typically have interpreted this to mean a verbatim description, letter for letter, and punctuation for punctuation, in accordance with the letter of credit.

The UCP further provides, “In documents other than the commercial invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit” (Article 14 e).

APPLES, ORANGES AND FRUIT

Note the use of the words, “not conflicting.” If a letter of credit states “Apples” as the merchandise description, then the invoice must read “Apples.” Other documents, such as the bill of lading, may state “Fruit,” and be considered acceptable because "Fruit" does not conflict with “Apples.”

A bill of lading which states, “Oranges” does conflict and is unacceptable. Interpretation of this policy is more difficult for a banker who has no knowledge of the merchandise or if the merchandise is highly technical.

In recent years I have seen documents prepared by freight forwarders showing all documents, not just the invoice, with the merchandise description identical to the letter of credit. Undoubtedly, this safe method leaves no need on the part of the bank to interpret the description from document to document.

An uncertain bank will take the safe, conservative approach, and ask for replacement documents, refuse payment, or obtain a waiver of the discrepancy from the applicant, if the documents do not strictly match the letter of credit.