Commercial Invoice Discrepancies

Top 5 Discrepancies in a Commercial Invoice

Commercial invoice is one of the key documents in a letter of credit transaction.

Almost all documentary credits, either commercial or standby, requesting a commercial invoice from the beneficiaries.

On this article I would like to highlight 5 most common commercial invoice mistakes.

Description Of Goods On The Commercial Invoice Does Not Correspond With The Letter of Credit:

This is one of the most frequently seen discrepancies on commercial invoices.

According to the latest letters of credit rules the description of the goods, services or performance in a commercial invoice must correspond with that appearing in the credit.

As a result beneficiaries must be very careful when completing the description of goods on commercial invoices.

Example of a Description of Goods Discrepancy:
Letter of credit:
45A: Description of Goods &/or Services
Crushing plant. As per proforma invoice no. :P-111-7 R02 dated 03/07/2012 CFR, Bahrain.

Commercial Invoice
Second Hand Crushing Plant. As per proforma invoice No.: P-111-7 R02 dated 03/07/2012 CFR, Bahrain.

Reason for Discrepancy: Description in the commercial invoice would represent a change in nature, classification or category of the goods.

Commercial Invoice Does Not Show Trade Terms (Incoterms):

When importers and exporters mutually agreed on international trade terms (Incoterms) by stipulating them in a letter of credit, they are bound by these international trade terms as a material part of the contract.

This means that if letter of credit stipulates international trade term under the description of goods section, exporters have to mention this trade term on the commercial invoice as indicated in the credit.

Example of a Trade Term Discrepancy:
Letter of Credit:
45A: Description of Goods &/or Services
420 pcs. of black tires size 275/70R225TL148/145J (152e) MC85 model 2011 as per pro. Inv. No. 011 dated 9/6/2011 FOB: Rotterdam Port – Netherlands Incoterms 2010

Commercial Invoice
420 pcs. of black tires size 275/70R225TL148/145J (152e) MC85 model 2011 as per pro. Inv. No. 011 dated 9/6/2011 FOB: Rotterdam Port – Netherlands Incoterms 2000

Reason for Discrepancy: Incoterms not mentioned correctly. Letter of credit stipulates FOB: Rotterdam Port – Netherlands Incoterms 2010 whereas commercial invoice indicates the trade term as FOB: Rotterdam Port – Netherlands Incoterms 2000.

Commercial Invoice Indicates Goods Which Are Not Mentioned In The Letter Of Credit:

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.

Example of a Commercial Invoice Indicates Goods Which are not Mentioned in the Letter of Credit Discrepancy:
Letter of Credit:
45A: Description of Goods &/or Services
Power Transformer offload 1 Unit Onan 3phs Cu/cu Dyn11 50hz

Commercial Invoice
Power Transformer offload 1 Unit Onan 3phs Cu/cu Dyn11 50hz
Transformer Spare Parts (Free of Charge)

Reason for Discrepancy: Transformer Spare Parts are not called in the letter of credit. Mentioning these goods on the commercial invoice even if free of charge creates a discrepancy.

Proforma Invoice Presented Instead of a Commercial Invoice:

When a 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”, “pro‐forma” or the like.

Exporters should not present a proforma invoice instead of a commercial invoice.

Quantity of Goods Not Consistent With Other Documents:

Any total quantity of goods and their weights or measurements shown on the invoice is not to conflict with the same data appearing on other documents.

Top 10 Letter of Credit Discrepancies

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

According to the LC Market Intelligence Survey conducted by DC-Pro in year 2005 the average discrepancy rate on first time presentations under export letters of credit is 56%.

Although the report is quite out-dated, the figures are presumably almost identical today.

Discrepancies create problems especially for the exporters.

Once the documents are rejected, the issuing banks can only pay the credit amount, if and only if the importers accept the discrepancies.

Leaving the payment decision to the importers’ hands is a great deal of frustration for the exporters.

There are many reasons why exporters present discrepant documents, but the most important ones are:

lack of knowledge,
could not understand the letter of credit mechanism and
underestimating the risk factors associated with the letter of credit transaction.

On this page, you can find 10 most frequently seen discrepancies with examples in letters of credit.

Discrepancy Number 1 : Inconsistency in Documents

UCP 600 states that “Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.”

So if banks find inconsistency between documents, they raise a discrepancy.

Example: Container Number not in Accordance with the Bill of Lading Discrepancy

Discrepancy Number 2 : Incorrect Data

Information any one of the document presented is not comply with the letter of credit terms and conditions.

Banks examine the documents under a letter of credit according to the letter of credit rules in order to determine whether the presentation is complying or not.

According to Article 2, a complying presentation means a presentation in accordance with the terms and conditions of the credit, the applicable provisions of the UCP 600 and international standard banking practice.

As a result if banks find out that at least one of the letter of credit condition is not indicated on the presented documents, they raise a discrepancy.

Example: Insurance Coverage is Insufficient Discrepancy

Discrepancy Number 3 : Late Shipment

Goods shipped after the permitted shipment date or period.

If date of the transport document such as the bill of lading date corresponds to a later date than the latest date of shipment stipulated in the credit, then banks raise the late shipment discrepancy.

Example: Multimodal Bill of Lading Late Shipment Discrepancy

Discrepancy Number 4 : Late Presentation

Documents presented later than 21 days after shipment or after the number of dates stipulated in the letter of credit.

If the credit is silent on the latest date of presentation, then you have to present your letter of credit documents within 21 days after “the date of shipment”.

But please keep in mind that this period can be shorten by the credit. As a result you need to read your credit very carefully in order to determine your presentation period.

Discrepancy Number 5 : Letter of Credit Expired

Documents presented after the letter of credit has expired.

Normally banks should not accept any documents that have been presented after the expiry date of the credit.

However, banks left the final decision to the applicants on this regard by evaluating the late presentation as a discrepancy.

Discrepancy Number 6 : Absence of Documents

Documents required by the letters credit is missing. Missing document discrepancy may also cover insufficient number of original documents presentation.

For example, the UCP 600 demands presentation of all original insurance documents if the insurance document states that it is issued more than one original.

If it is clear on the insurance document that it is issued in two originals, then the beneficiary has to present both originals of the insurance documents. If the beneficiary presents only one original instead of two originals, then the issuing bank raises absence of documents discrepancy.

Example: All Originals of Insurance Policies Have Not Been Presented Discrepancy

Discrepancy Number 7 : Carrier Not Defined on the Bill of Lading

The name of the carrier on the bill of lading is not defined and bill of lading is not signed by the master, the carrier or an agent on behalf of the carrier or master.

UCP 600 Article 20 indicates that:

A bill of lading, however named, must appear to:
i. indicate the name of the carrier and be signed by:
– the carrier or a named agent for or on behalf of the carrier, or
– the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

If banks could not locate the name of the carrier on the face of the bill of lading, then they mention this point as a discrepancy.

Example: Carrier Not Identified and Bill of Lading Not Signed As Per UCP 600 Discrepancy

Discrepancy Number 8 : Incorrect Description of Goods

Description of goods indicated on the invoice and other trade documents differs from the description of goods stated in the credit.

According to the international standard banking practice, the description of the goods, services or performance shown on the invoice is to correspond with the description shown in the credit.

There is no requirement for a mirror image. For example, details of the goods may be stated in a number of areas within the invoice which, when read together, represent a
description of the goods corresponding to that in the credit.

A goods description indicated on any other document may be in general terms not in conflict with the goods description in the credit.

If banks determine that the description of the goods not corresponding to the letter of credit, they raise incorrect description of goods discrepancy.

Example: Description of Goods Discrepancy

Discrepancy Number 9 : Incorrect Endorsement / Absence of Endorsement

Bill of lading, insurance policy or draft (bill of exchange) not endorsed by the beneficiary of the credit.

Discrepancy Number 10 : Partial Shipment or Transshipment Effected Despite L/C Terms

Exporters have to be very careful with the partial shipments and transshipments.

Please read credit text and determine if credit allowed or not allowed partial shipments and transshipments.

Example: Partial Shipment Discrepancy

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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

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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

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

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commercial invoice discrepancy issuer of the document

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.

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 Invoice

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

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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 Invoice

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

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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

Discrepancy: 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

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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

Discrepancy: 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

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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 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.