LC Documentation & Bank Compliance

How to Prepare Letter of Credit Documents Without Rejection

(Avoiding Discrepancies)

Introduction

The Letter of Credit (LC) is one of the safest and most widely used payment methods in international trade.

However, LCs are also dangerous for inexperienced traders because banks may reject or delay payments if the documents are not 100% accurate and fully compliant.


Banks do not care about:

  • Your relationship with the buyer
  • your contract
  • your phone conversations
  • What did you mean?

Banks ONLY examine documents according to UCP 600 (Uniform Customs & Practice for Documentary Credits).


If documents do not match the LC exactly — even punctuation — the bank will not pay.


This lesson teaches you how to prepare LC documents correctly and avoid discrepancies.

1.What Is an LC (Letter of Credit)?

An LC is a bank guarantee ensuring that the seller receives payment if they submit the required documents exactly as listed in the LC.


LC protects:

  • Seller → from buyer non-payment
  • Buyer → because payment only happens when the seller ships goods correctly

2. The LC Workflow (Step-by-Step)

  • Buyer applies for an LC at their bank
  • Buyer’s bank (Issuing Bank) sends LC to Seller’s Bank (Advising Bank)
  • Seller reviews LC → requests amendments if needed.
  • Seller ships goods
  • Seller prepares documents EXACTLY as required.
  • Seller submits documents to the bank.
  • Bank checks documents under UCP 600
  • If compliant → payment released.
  • If discrepancies → LC fails until corrected

3. Documents Required Under LC

Most LCs require the following:

✔ Commercial Invoice (CI)

✔ Packing List

✔ Bill of Lading (BL) or Air Waybill

✔ Certificate of Origin

✔ Inspection Certificate (SGS/BV)

✔ Insurance Certificate (if CIP/CIF)

✔ Phytosanitary certificate (for agricultural goods)

✔ Certificate of Weight & Quality

✔ Product-specific certificates


Important:

The LC will always specify:

  • Number of copies
  • Format
  • Who must sign
  • Who must issue
  • Delivery time frame

4. The 12 Most Common LC Discrepancies

(Why Banks Reject Documents)

These are REAL reasons banks reject LC documents:

❌ 1. Misspelled names (even one character)

“Green Gubre Group” ≠ “Green Guber Group”


❌ 2. Wrong Incoterm or missing location

CIF must be “CIF + port name”.


❌ 3. BL date not within shipment window

Example: LC allows shipment between March 1–10 → BL dated March 11 = LC failure.


❌ 4. Different product description

“Urea 46% Granular” ≠ “Urea 46%”


❌ 5. Missing or incorrect HS code


❌ 6. Missing stamp or signature on required documents


❌ 7. Quantity mismatch

The invoice shows 30,000 MT, but the BL shows 29,850 MT.


❌ 8. Incorrect packaging details

LC requires “50kg bags,” but the invoice says “Big Bags 1,000kg.”


❌ 9. Wrong number of document copies


❌10. Banks receive documents late

There is always a presentation period (e.g., 21 days after BL date).


❌ 11. Incorrect insurance coverage

LC requires “110% of CIF value” → seller provides only CIF value.


❌ 12. Wrong consignee or notify party on BL

Banks reject LC documents for even tiny discrepancies.

5. How to Read an LC Correctly (Professional Method)

Divide the LC into sections:


Section 1: Parties

  • Applicant (buyer)
  • Beneficiary (seller)
  • Issuing & advising banks

Check spelling → must match exactly.


Section 2: Amount and Currency

Check for:

  • Tolerance (e.g., ±5%)
  • Currency (USD/EUR/etc.)


Section 3: Goods Description

Must match:

  • Contract (SPA)
  • Invoice
  • BL
  • Packaging list
  • COO

Use “copy-paste” to avoid errors.


Section 4: Shipment Terms

  • Incoterms
  • Loading port
  • Discharge port
  • Shipment window
  • Partial shipment allowed?
  • Transshipment allowed?


Section 5: Required Documents

Make a checklist:

  • Invoice (number of copies?)
  • BL (negotiable or not?)
  • COO (chamber stamp required?)
  • Inspection report (SGS or BV?)
  • Packing list
  • Insurance certificate


Section 6: Presentation Period

Most LCs require documents within 21 days after the BL date.


Section 7: Additional Conditions

Often include:

  • No handwritten corrections
  • All documents must show the LC number.
  • The seller must sign any document not issued by the seller.
  • Tolerances in weight/quantity

6. How to Prepare LC Documents Without Errors (Professional Checklist)


6.1. Copy-Paste All Buyer/Seller Names

Manual typing causes errors → copy from the LC exactly.


6.2. Create an LC Document Checklist

With columns:

LC Requirement Document Status Notes

Tick each item ONLY when complete.


6.3. Prepare Draft Documents Before Shipment

Send drafts to the buyer for pre-check.

This avoids post-shipment corrections.


6.4. Match Every Detail Across All Documents

All documents must match EXACTLY:

  • Company names
  • HS codes
  • Packaging
  • Weight
  • Quantity
  • Incoterms
  • Vessel name
  • BL date
  • Invoice value


6.5. Ensure Vessel Loading Matches LC Dates

If the BL date is outside the LC shipment window, the bank refuses payment.


6.6. Insurance Must Match LC Requirements

Example:

LC requires insurance = 110% of CIF value

If the certificate shows 100% → discrepancy.


6.7. Submit Documents to Bank Early

Do not wait until the deadline.

Banks need time to check & correct issues.

7. LC Under UCP 600 – Rules You Must Know

Banks interpret documents according to UCP 600, not contract terms.


Key Bank Principles:

✔ Banks examine documents, not goods.

✔ Banks check documents within five banking days.

✔ Documents must be consistent internally.

✔ BL must be “clean” (no remarks indicating damage).

✔ Banks do not care about external agreements.

8. Real-World Examples

Example A: LC for Urea Shipment – Discrepancy

LC requires:

  • “Granular Urea 46% Nitrogen”
  • Seller writes “Urea 46% Granular.”

Bank rejects.

Payment delayed 12 days → seller pays $30,000 in demurrage.


Example B: LC requires “SGS inspection at loading port”

Seller submits the BV report.

The bank rejects because the inspection agency is different.

Result → LC discrepancy.


Example C: Wrong BL date

LC shipment window: April 1–15

Vessel delayed → BL issued April 16

Bank rejects → buyer must amend the LC.

9. How to Avoid LC Failure (Golden Rules)


✔ Always negotiate LC terms BEFORE contract signing

✔ Ask for the LC draft BEFORE the buyer opens the LC

✔ Never ship before checking the LC

✔ Use an experienced export LC specialist

✔ Maintain an internal LC compliance checklist

✔ Double-check everything before bank submission

10 Common LC Mistakes Made by Beginners


❌ Accepting LC without reviewing terms

❌ Believing the buyer can “fix” issues later

❌ Not coordinating with the shipping line

❌ Missing document deadlines

❌ Wrong Incoterm interpretations

❌ Depending on verbal promises

❌ Giving banks incorrect original documents

Conclusion

The Letter of Credit is one of the safest payment methods — provided you understand the documentation and compliance requirements.

By mastering LC document preparation and avoiding discrepancies, you protect your business, ensure timely payment, and operate like a professional trader.


You now understand:

  • The structure of an LC
  • Bank compliance rules
  • How to prepare perfect documents
  • How to avoid LC rejection
  • How to communicate with banks and buyers professionally

This is one of the most advanced and essential skills in global trading.

What Comes Next?

In the following lessons, you will learn:



Lesson 18 – Banking Instruments:

SBLC, DLC, BG, MT700/MT760 Messages, & How Financial Instruments Work in Trading