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Commercial Invoice Discrepancies

By
Ozgur Eker (CDCS)
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0

On this page, you can find most common discrepancy examples related to the commercial invoice.

Invoice is a commercial document. A commercial invoice is a required document for the export and import clearance process. It is sometimes used for foreign exchange purposes.

In the buyer’s country, it is the document that is used by their custom officials to assess import duties and taxes. (Source: Export Information and Documentation: A Guide for New Exporters Page: 18)

A commercial invoice should be issued by the beneficiary of the letter of credit, according to the letter of credit rules and standard banking practices.

UCP 600 Article 18 explains specific requirements for commercial invoices.

Commercial invoice is one of the main documents in letters of credit transactions, for that reason almost all letters of credit request presentation of a commercial invoice.

Commercial Invoice Discrepancies

Important Definitions Regarding the Commercial Invoice Under Latest Letter of Credit Rules:

  • According to UCP 600, latest letter of credit rules, a commercial invoice need not to be signed, but almost all custom authorities require manually signed commercial invoice. As a result, make sure that commercial invoice is signed and stamped properly.
  • When a credit demands presentation of an “invoice” without further description, this will be satisfied by the presentation of any type of invoice (commercial invoice, customs invoice, tax invoice, final invoice, consular invoice, etc.) except invoices titled with “provisional”, “pro‐forma” or the like.
  • An invoice should be issued by the beneficiary. In a transferable letter of credit, the second beneficiary could issue the commercial invoice.
  • The invoice should show exact description of the goods, services or performance shown in the letter of credit. The description of goods, services or performance on an invoice is to reflect what has actually been shipped, delivered or provided.
  • A commercial invoice should indicate the value of the goods shipped or delivered and the unit prices, when stated in the credit.
  • Invoice should be issued in the same currency as that shown in the letter of credit.

Short Shipment Discrepancy

By
Ozgur Eker (CDCS)
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0

Partial shipment can be defined as shipping the goods not whole at once, but in smaller consignment(s).

Partial Shipment Examples: Let us assume that letter of credit requires shipment of 10 buses.

If the shipper dispatches;

  • 8 buses under 1 shipment, makes a partial shipment
  • 4 buses under 1st shipment and 5 buses under 2nd shipment, makes a partial shipment
  • 5 buses under 1st shipment and 5 buses under 2nd shipment, makes a partial shipment.

Letter of credit rules allow partial shipments and partial drawings, which means that an exporter could make partial shipments under a letter of credit as long as the credit terms do not dictate the contrary.

In order to understand, whether or not partial shipments are allowed under a documentary credit, you need to look at “Field 43P: Partial Shipments” within the swift message body.

  • Field 43P: Partial Shipments: “Allowed” means that partial shipments are permitted
  • Field 43P: Partial Shipments: “Not Allowed” means that partial shipments are not permitted.

If a letter of credit prohibits partial shipments, the beneficiary must ship the goods in full quantity under a single shipment. (Please be noted that there are some tolerances exist in the letter of credit rules. Refer UCP 600 Article 30-c).

Contrary acts will be punished by banks either with partial shipments effected or short shipment effected discrepancies.

Discrepancy Example: Short Shipment Discrepancy Under a Letter of Credit:

A letter of credit has been issued in SWIFT format, subject to UCP 600, with the following details:

Letter of Credit Conditions

Field 50: Applicant : Auto Paint Importer Co. Ltd. 1800 Arnold Industrial Place 94520 CA USA

Field 43P: Partial Shipments: Not Allowed

Field 43T: Transhipment: Allowed

Field 45A: Description of Goods and or Services: Supply of 100% Acrylic Premium Quality Latex (Water Based) paints packed in 55 Gallon Drums. Price : 300 USD / drums Quantity: 80 Drums. As per Proforma Invoice No 100 dated 10.02.2014. Delivery Terms: CIF Long Beach Seaport California Incoterms 2010.

Field 46A: Documents Required: 3 original signed commercial invoices and 3 copies.

The beneficiary presented a commercial invoice as shown on the below picture.

Commercial Invoice

short shipment discrepancy letter of credit

Discrepancy: Short shipment effected. Letter of credit prohibits partial shipments. As a result, the beneficiary should have shipped 80 drums of paints in 24.000,00 USD full amount, but instead the beneficiary shipped 70 drums of paints corresponding to 21.000,00 USD, which is a partial letter of credit amount.

Reason for Discrepancy: Letter of credit prohibits partial shipments. Beneficiary should have shipped the goods in full quantity as called for in the credit under a single shipment.

Commercial Invoice Not Issued by the Beneficiary Discrepancy

By
Ozgur Eker (CDCS)
-
0

A commercial invoice is a trade document, which is generally prepared during the shipment stage.

A commercial invoice is a required document for the export and import clearance process. It is sometimes used for foreign exchange purposes.

In the buyer’s country, it is the document that is used by their custom officials to assess import duties and taxes. (Source: Export Information and Documentation: A Guide for New Exporters Page: 18)

A commercial invoice should be issued by the beneficiary of the letter of credit, according to the letter of credit rules and standard banking practices.

A commercial invoice must appear to have been issued by the beneficiary or, in the case of a transferred credit, the second beneficiary.

A commercial invoice must appear to have been made out in the name of the applicant.

If the beneficiary of a letter of credit presents a commercial invoice, which has been issued by an entity other than the beneficiary, the issuing bank raises a discrepancy, which is known as invoice not issued by the beneficiary.

Discrepancy Example: Commercial Invoice Not Issued by the Beneficiary

A letter of credit has been issued in SWIFT format, subject to UCP 600, with the following details:

Letter of Credit Conditions

Field 59: Beneficiary – Name & Address: Himmel Konig Sondermaschinen GmbH Auguste-Kessler-Str. 10 72100 Aalen Germany

Field 45A: Description of Goods and or Services: Supply of 1 pcs erosion and tool grinding machine as per Proforma Invoice No 120 dated 12.03.2014. Delivery Terms: CFR Apapa Seaport Lagos Incoterms 2010.

Field 46A: Documents Required: 2 original signed commercial invoices and 3 copies.

Field 47A: Additional Conditions: Third party documents are acceptable which means that all documents, excluding drafts and invoices, may be issued by a party other than the beneficiary.

The beneficiary presented a commercial invoice as shown on the below picture.

Commercial Invoicecommercial invoice beneficiary discrepancy

Discrepancy: Invoice should have issued by “Himmel Konig Sondermaschinen GmbH”, but it is actually issued by “Maschinen Handels GmbH” .

The additional condition, which is included in field 47-A, would have no effect on determination of the discrepancy, because the draft and the commercial invoice have been excluded from the scope of this clause.

Reason for Discrepancy: Commercial invoice not issued by the beneficiary. A commercial invoice must appear to have been issued by the beneficiary or, in the case of a transferred credit, the second beneficiary.

Commercial Invoice Shows Merchandise Not Called For Discrepancy

By
Ozgur Eker (CDCS)
-
0

A commercial invoice should not indicate goods, services or performance not called for in the credit.

As per letter of credit rules and international standard banking practices, an invoice is not to indicate goods, services or performance not called for in the credit.

This letter of credit rule applies, even when the invoice shows additional quantities of goods as required by the credit or samples are declared to be shipped free of charge.

If the beneficiary of a letter of credit presents a commercial invoice, which contains goods not indicated in the letter of credit, the issuing bank raises a discrepancy, which is known as commercial invoice shows merchandise not called for in the letter of credit.

Discrepancy Example: Commercial Invoice Shows Merchandise Not Called For

A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:

Letter of Credit Conditions

Field 45A: Description of Goods and or Services: Shirts – long sleeve – 980 pieces, shirts – short sleeve – 1510 pieces, long pants – 980 pieces, shorts – 250 pieces. As stated on order sheet 4750 revised – dated 10th January 2014. Delivery Terms: CPT Barcelona Spain Incoterms 2010.

Field 46A: Documents Required: Signed commercial invoices in two originals showing letter of credit number and certifying that the merchandise is as per purchase order.

The beneficiary presented a commercial invoice as shown on the below picture.

Commercial Invoicecommercial invoice discrepancy example

Discrepancy: Commercial invoice shows merchandise not called for in the letter of credit. If you look at the last column of the description of goods part, you will see that “10 Pcs of Shirts – long sleeve (Free of Charge)” is not called for in the letter of credit.

Even if they have been shipped “Free of Charge“, it is against letter of credit terms.

Reason for Discrepancy: An invoice is not to indicate goods, services or performance not called for in the credit.

This applies even when the invoice includes additional quantities of goods, services or performance as required by the credit or samples and advertising material and are stated to be free of charge.

Proforma Invoice Presented Instead of a Commercial Invoice Discrepancy

By
Ozgur Eker (CDCS)
-
0

A proforma invoice is a commercial document, usually prepared during the negotiation stage of the order.

A proforma invoice is a quote in an invoice format that may be required by the buyer to apply for an import license, contract for pre-shipment inspection, open a letter of credit or arrange for transfer of currency. (Source:Export Information and Documentation: A Guide for New Exporters Page: 16)

A commercial invoice is also a commercial document, but unlike the proforma invoice, it generally prepared during the shipment stage.

A commercial invoice is a required document for the export and import clearance process. It is sometimes used for foreign exchange purposes.

In the buyer’s country, it is the document that is used by their custom officials to assess import duties and taxes. (Source:Export Information and Documentation: A Guide for New Exporters Page: 18)

The letter of credit rules and international standard banking practices do not allow presentation of a “provisional”, “proforma”, “performa” invoice instead of a commercial invoice.

If the beneficiary presents a proforma invoice instead of a commercial invoice, the issuing bank raise a discrepancy, which is known as “Proforma Invoice Presented Instead of a Commercial Invoice”.

Discrepancy Example: Proforma Invoice Presented Instead of a Commercial Invoice

A letter of credit has been issued in SWIFT format, subject to UCPURR latest version, with the following details:

Letter of Credit Conditions

Field 45A: Description of Goods and or Services: Electrical Equipment as per proforma invoice no 40000 of 2014/04/10 mention to be indicated on the definitive invoice.

Field 46A: Documents Required: Signed commercial invoice in six copies issued by beneficiary, original of which must be certified by the chamber of commerce and legalized by the consulate of Jordan, if available at beneficiary’s location, if not, legalization should be effected by any other Arab Consulate.

The beneficiary presented a proforma invoice as shown on the below picture.

Commercial Invoice

proforma invoice discrepancyDiscrepancy: Proforma invoice has been presented instead of a commercial invoice.

Reason for Discrepancy: Letter of credit rules prohibit presentation of a proforma invoice instead of a commercial invoice.

When a letter of credit requires presentation of an “invoice” without further description, this will be satisfied by the presentation of any type of invoice (commercial invoice, customs invoice, tax invoice, final invoice, consular invoice, etc.). However, an invoice is not to be identified as “provisional”, “proforma” or the like.

Description of Goods Discrepancy

By
Ozgur Eker (CDCS)
-
0

According to the letter of credit rules and international standard banking practices, the description of the goods, services or performance shown on the commercial invoice is to correspond with the description stated in the letter of credit.

Commercial invoice, which is the only document as defined in the UCP 600, that must show the full description of goods as quoted in field 45-A Description of Goods and or Services.

On other documents, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit.

If the commercial invoice states a description of goods and services not indicated in the letter of credit, banks raise a discrepancy which is known as description of goods on the commercial invoice is not as per L/C terms.

Discrepancy Example: Description of Goods on the Commercial Invoice is not as per L/C 

A letter of credit has been issued in SWIFT format, subject to UCPURR latest version, with the following details:

Letter of Credit Conditions

Field 45A: Description of Goods and or Services: Evening dress as per proforma invoice dtd 19.05.2014 for goods delivered CIF Stockholm Port, Sweden Incoterms 2010.

Field 46A: Documents Required: Signed commercial invoices in one original and three copies, certified by the chamber of commerce in the exporting country and bearing this clause: ”We certify that invoices are in all respects correct and true both with regard to the price and description of goods referred to therein and as per Proforma Invoice no.010 dated 09/05/2014 indicated in this credit and that the country of origin or manufacturer of the goods is Spain” and must be made out in the name of l/c applicant indicated in field 50.

The beneficiary presented a commercial invoice, which is indicated an inconsistent description of goods with the letter of credit.

Commercial Invoice

description of goods discrepancyDiscrepancy: Description of goods not per L/C terms on the commercial invoice. As per letter of credit terms, the commercial invoice should have shown “Evening dress” as a description of goods.

But the invoice shows “Used Evening Dress (30% Defected)” under Description of Goods column.

Reason for Discrepancy: The description of the goods, services or performance shown on the invoice is to correspond with the description shown in the letter of credit.

Incoterms Discrepancy

By
Ozgur Eker (CDCS)
-
0

The Incoterms are a standard set of trade terms used worldwide mostly in international trade. It is also possible to use them in domestic contracts of sale.

The rules define the obligations, costs and risks of sellers and buyers in connection with the delivery of goods.

When exporters and importers mutually agreed on the trade terms by stipulating them on a sales contract or proforma invoice, they are bound by these terms as a material part of the contract.

As a result, issuing banks often include these trade terms in to the letters of credit, generally under field 45-A: Description of Goods and Services.

Examples: FOB Shanghai Port, Incoterms 2010, FCA New York Container Terminal, Incoterms 2010 etc.

If the letter of credit incorporated a trade term, as mentioned above, the commercial invoice must indicate them precisely. Otherwise, banks raise a discrepancy, which is known as Incoterms not stated on the commercial invoice.

Sample Incoterms not Stated on the Commercial Invoice Discrepancy under a Letter of Credit:

A letter of credit has been issued in SWIFT format, subject to UCPURR latest version, with the following details:

Letter of Credit Conditions

Field 45A: Description of Goods and or Services: Kitchen cabinets as per applicant’s purchase order no. D12020 dtd 01.06.2014, Ex-works Montelabbate Italy, Incoterms 2010.

Field 46A: Documents Required: Manually signed commercial invoice in one original plus one duplicate, the original must be certified by chamber of commerce. The commercial invoice must show 100 pct. value of goods shipped, less pro-rata deduction of advance payment made as per clause no. 1.

The beneficiary presented a commercial invoice without stating the trade terms on it.

Commercial Invoice

commercial invoice discrepancy incoterms

Commercial invoice does not indicate trade term as required by the letter of credit. Presentation is discrepant. “Ex-works Montelabbate Italy, Incoterms 2010.” is missing on the invoice.

Discrepancy: Trade term not identified on the commercial invoice. As per letter of credit conditions commercial invoice should have shown “Ex-works Montelabbate Italy, Incoterms 2010.”

Reason for Discrepancy: When a trade term is stated as part of the goods description in the credit, an invoice is to indicate that trade term.

Bill of Lading Discrepancies

By
Ozgur Eker (CDCS)
-
0

On this post, you can find most common bill of lading discrepancy examples.

Discrepancy can be defined as an error or defect, according to the issuing bank, in the presented documents compared with the documentary credit, the UCP 600 rules or other documents that have been presented under the same letter of credit.

Bill of lading is a transport document. UCP 600 defines 4 types of bills of lading:

  • Multimodal Transport Document: Multimodal transport document is covering shipments by at least two different modes of transport. This document should be treated as a multimodal bill of lading, only when one transportation leg is carried out by sea.
  • Ocean Bill of Lading: Issued by container liners for port-to-port sea shipments.
  • Charter Party Bill of Lading: Shippers may, when large or bulk cargoes are concerned, lease the carrying vessel for a stated time or specific voyage under a charter party contract with the owner. Goods carried are then covered under a form of bill of lading issued by the charterer and indicate as being shipped, subject to the term and conditions of the charter party.
  • Non-Negotiable Sea Waybill: Works just like the ocean bill of lading, other than that this transport document is not a title of property.

The discrepancies on this post are related to ocean bill of lading.

Bill of Lading Discrepancies

Tips to Prepare Discrepancy Free Bills of Lading:

  • According to latest UCP 600 letter of credit rules a marine bill of lading should not bear any indication that it is subject to a charter party.
  • A bill of lading should indicate the number of originals that have been issued. All original marine bills of lading issued by the carrier must be presented to the issuing bank by the beneficiary.
  • Transshipment is defined as the unloading and reloading of goods from one vessel to another during the carriage of goods from the port of loading to the port of discharge. A bill of lading indicating that transshipment will or may take place is acceptable, even if the credit prohibits transshipment, if the goods have been shipped in a container, trailer or lash barge as evidenced by the bill of lading.
  • Bill of lading should be regarded as a negotiable transport document unless it is consigned to a named consignee.
  • More than one notify parties could be stated in a bill of lading without any problem.
  • ‘To Order’ or ‘To the order of shipper’ means that bill of lading should be endorsed by the shipper as per letter of credit instructions.

Intended Vessel Discrepancy

By
Ozgur Eker (CDCS)
-
0

There are two main types of bills of lading available on the market, in terms of shipment notations: “Received for shipment…” bill of lading and “Shipped … on board” bill of lading.

If you want to understand, which type of bill of lading you have in your hand, please simply look at the right bottom or right top corner of the bill of lading.

You will (most probably) see a small rectangular, which contains an abstract of contract of carriage.

Please keep in mind that full details of the terms and conditions of the carriage will be placed on the back side of the bill of lading, of course, if it is not a blank-back or short form bill of lading.

  • If the abstract of contract of carriage contains a phrase like “Received by the carrier…“, then the bill of lading is a “Received for shipment…” bill of lading;
  • If the abstract of contract of carriage contains a phrase like “Shipped, in apparent good order and condition…“, then the bill of lading is a “Shipped … on board” bill of lading.

Received for shipment bill of lading confirms that the carrier has taken charge of the goods.

However, received for shipment bills of lading do not confirm that the container has been shipped on board a named vessel. As a result, these kind of bills of lading require an additional “shipped on board” notation.

Because of the fact that the name of the actual vessel is not determined at the time of the issuance of the received for shipment bill of lading, the carrier may define the vessel as an “intended vessel“.

Unfortunately, the letter of credit rules accept intended vessel notation as a discrepancy in the absence of an on board notation.

The only way to get your payment from the issuing bank under letter of credit transaction is to make a discrepancy free presentation. So, you must understand what an intended vessel discrepancy is.

Why Intended Vessel Clause Inserted on the Bill of Lading?

The actual vessel may not be determined when the carrier receives the goods from the shipper, especially in “Received for shipment” types of bills of lading.

It has therefore become common practice to indicate the name of an intended vessel in the bill of lading, thus making it clear that a different vessel finally be selected.

Therefore, the bill of lading, as originally issued, does not indicate that the goods have been shipped on board a named vessel. (Gary Collyer, The Guide to Documentary Credits, 3rd Revision, Page: 205)

What the Letter of Credit Rules Say About Intended Vessel?

According to UCP 600 “If the bill of lading contains the indication “intended vessel” or similar qualification in relation to the name of the vessel, an on board notation indicating the date of shipment and the name of the actual vessel is required.”

Absence of such an on board notation will make the bill of lading discrepant.

Example intended vessel discrepancy on a bill of lading under a letter of credit:

A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:

Letter of Credit Conditions

Field 46A: Documents Required: Full set of original bill of lading shipped on board marked freight collect made out to the order of Bank Millennium S.A, Poland notify applicant.

The beneficiary presented a bill of lading among other documents as shown on the below picture:

intended vessel clause

Costs Additional to Freight Discrepancy

By
Ozgur Eker (CDCS)
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0

Letter of credit rules allow transport documents to show costs additional to freight.

However, some banks especially in certain countries, prohibit costs additional to freight to be mentioned on the transport documents, by cancelling the related article of UCP 600.

If a letter of credit indicates that costs additional to freight is not acceptable, then the transport document presented must not indicate that costs additional to the freight have been or will be incurred.

How Could Costs Additional to Freight Discrepancy Occur?

Tere are the three requirements of a costs additional to freight discrepancy.

  1. A letter of credit, that expressly prohibits cost additional to freight and cancels related article of UCP 600.
  2. A transport document, that is presented with a cost additional to freight expression such as FIFO, FILO, FIO etc…
  3. A discrepancy raised by the issuing bank due to the transport document shows charges additional to freight contrary to l/c terms.

Costs Additional to Freight Discrepancy Example:

A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:

Letter of Credit Conditions

46A: Documents Required

  1. Full set of at least 3/3 long form original (clean on board) bill of lading on the printed forms of carrier plus one non-negotiable copy issued or endorsed to the order of Expo Arab Bank Plc, notify applicant showing freight prepaid and showing full name and address of the shipping company agent or his representative in Bahrain.
  2. Bill of lading showing charges additional to the freight mentioned in article 26 (c) of the UCP, 2007 revision, publication no. 600 are not acceptable except where such additional charges are demurrage fees for containers.
  3. Short form or blank back bill of lading are not acceptable.

The beneficiary presented a bill of lading, that contains a clause stating that “Carriage Term: Free In & Liner Out”

Bill of Lading

costs additional to freight discrepancy

Discrepancy:

The documents refused by the issuing bank due to the discrepancy indicated on the following advice of refusal.

————————————-Message Header——————————————-
Swift OUTPUT FIN 734 Advice of Refusal
Sender: EXPOBHBMMAN
EXPO ARAB BANK PLC
MANAMA BH

Receiver: IHRKTRISXXX
TURKIYE IHRACAT BANKASI T.A.S
ISTANBUL TR
—————————————-Message Text——————————————-
20: Sender’s TRN
2002RML2AI2A3369

21: Presenting Bank’s Reference
18208L23R109

32A: Date and Amount of Utilization
Date: 28 December 2012
Currency: USD (US DOLLAR)
Amount: #285.600,00#

33A: Total Amount Claimed
Date: 07 January 2013
Currency: USD (US DOLLAR)
Amount: #285. 600,00#

72: Sender to Receiver Information

Documents refused by us due to discrepancies stated below. We notified the applicant, we shall revert upon hearing from them.

77J: Discrepancies

  1. B/L shows additional charges to the freight not authorized under L/C.

77B: Disposal of Documents
/ HOLD /
————————————-Message Trailer——————————————–

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