Original And Copies

This is a very confusing topic for most of traders as well as bankers. The difference is only technical. In fact, I had tough time checking documents under letter of credit when it comes to establishing original or copies. 

Documents like Insurance Certificate, transport documents, official documents issued by third party do not require so much of scrutinizing as they are issued regularly on a daily basis to traders. 

These documents are always issued in original and copies. The problem is with the beneficiary or seller when issuing invoice or packing list.

What is original?

From the letter of credit point of view, original document is a document which does not bear any statement saying “copy” on the face of the invoice, for example. 

Even if the invoice is issued using preprinted stationery complete with address, contact number, seller’s trading mark and signed but bears a statement or stamp says “copy”, it is deemed to be a copy and not original. In the absence of the statement or stamp “copy”, the invoice is considered as original.

I had come across an invoice during my days way back in 1980s, from Hong Kong. It was hand written, signed and stamped with Chinese character in red. It did not bear any statement “original” or “copy”. 

This is, from the letter of credit point of view, an original invoice. An invoice which is computer generated is also original even if it is not signed by the issuer and does not bear statement “copy”. But if the letter of credit specifically requests for a signed invoice, it should be signed.

As a general rule, invoice issued using an issuer’s original stationery and does not bear any statement “copy” or computer generated or a carbon copy bearing the statement “original” is considered original. 

Take Bill of lading for example, it is always issued in multiple original, 1st original, 2nd original 3rd original and so on. The 2nd original onwards is customarily issued in carbon copies. But they are considered original because they bear the statement “original”.

To be safe and not to be caught with unnecessary discrepancy, I encourage you to issue all your invoices in original. Letter of credit may request 2 original and 2 copies. It is not a discrepancy if you present all 4 invoices in original.

Original Invoice and Copies

Two days ago I received an email from abroad concerning “original” and “copies” of invoice. The issue of original and copies have been brought to the attention of ICC many years ago when UCP 500 was still in force. It was a big issue where there were cases ended up in legal disputes.

To make this very clear, I think it is best to look at four situations below:

1. LC requests original invoice
2. LC requests a specific number of original invoice
3. LC permits copies of invoice
4. LC does not mention original invoice or copies

Upon receipt of the LC, it is very important to check and fully aware the terms of the LC such the issuing date, expiry date, the last day of presentation, availability of the LC and the date of shipment, to name a few. When these particulars are agreeable, look at the conditions like documents requirements, special instructions and the rest of the particulars.

Alright, let’s get back to invoice. Pay attention to field 46A (Documents required). Read carefully what are the documents required, number of pieces required. And cross check with field 47A (Additional conditions) to see if there is any special instruction where seller needs to perform.

If the LC requests the original invoice to be presented without specifically mentioned number of original, it means that at least one original invoice should be submitted. This will satisfy the requirement of the LC.

On the other hand, if the LC specifically mentioned “3 original invoice”, it means that 3 original invoice must be presented by the seller. This is a clear cut case.

Sometimes LC specifically mentioned, invoice in “3 copies”, “in duplicate” or “in two fold”. In this case, seller is said to have satisfied the condition of the LC by presenting at least one original invoice and the rest can be in copies. This is in accordance with article 17(a) of UCP 600.

If the LC does not mention either original invoice or copies to be presented, the seller shall present either original invoice or copies.

Commercial Invoice

Commercial Invoice is a bill for the goods shipped to the buyer. It is the accounting document for seller’s claim on the buyer for goods sold to the buyer. Commercial Invoice would normally contain the following information:

1. Names and addresses of the buyer and the seller
2. Date of invoice, sale contract or firm order, reference number, date and etc
3. Unit prices, if any, final sum claimed, shipment terms
4. Settlement terms viz sight, tenor, DA/DP and etc
5. Shipping marks and numbers
6. Weight/quantity of the goods
7. Name of the vessel, port of embarkation etc

In addition to these particulars, the following details are generally given in the commercial invoice to facilitate customs clearance in the importing country:

1. Country of origin of the goods
2. Ports of loading and discharge
3. Details of freight and insurance charges (where applicable)
4. Commissions payable to an agent
5. Seller’s certification under signature certifying value of goods and relevant particulars to be correct

When an invoice is to be tendered under terms of the LC, care must be taken to comply with the following requirement:

1. Invoice – made out to the seller – beneficiary (exception to transferable LC)
2. Must be addressed to the opener or such other party as specified in the LC
3. Description of goods must exactly correspond with description in the LC
4. Quantity must agree with that stated in the LC – subject to tolerance limits permitted under UCP
5. Price and price basis must be specified and agree with the LC terms
6. Signed, if expressly stated in the LC
7. Identifying marks, numbers, gross/net weight, number of packages etc agree with all other

8. relevant documents e.g. BL, insurance etc
9. Only permitted items of costs included
10. License number etc specified when stipulated
11. Amount should not exceed LC amount subject to the provision of UCP

There are variations of invoices which are used for various purposes either as a substitute or along with commercial invoice. Such widely used documents are:

1. Certified Invoice
2. Legalized Invoice
3. Combined Certificate of value and origin
4. Visaed invoice

Proforma Invoice

Proforma Invoice is a form of quotation by the seller given to a potential buyer. It is identical to a commercial invoice in appearance except that words ‘Proforma Invoice’ prominently appear on it.

Proforma invoice is used as an invitation to the buyer to place a firm order based on prices quoted in it. Many a time local regulations make it obligatory for the buyer to have proforma invoice which forms the basis for obtaining an import license and/or an exchange permit.

The proforma invoice would normally show the terms of trade and prices. The buyer is encouraged to fill in the quantity and total amount which is treated as an ‘offer to buy’ or ‘tender’. This, when accepted by the seller, forms a firm sale contract. In other words, proforma invoice is the simplest form of a sale contract.

Accepted proforma invoice is conclusive evidence of the terms agreed upon. Details from this are transposed verbatim to the commercial invoice in due course when goods are ready for delivery. Often the seller is required to certify on the commercial invoice that goods are in accordance with the proforma invoice no….dated….

Proforma invoices are also used in the following situations where settlement is not directly linked to the movement of goods e.g:

1. Advance payment i.e. before shipment of goods

2. Consignment sales; goods are exported to an agent who concludes firm sale contracts with the buyers and renders account of these sales to exporter from time to time. Proforma invoice acts as a guide for prices to be obtained from the buyers

3. Tender sales; proforma invoice is used to support a tender for a sale contract.

Transport Document

Most of the discrepancies discovered in LC operations are associated with the transport document. It is largely because LC stipulates a type of document which is not appropriate to the mode or modes of carriage which will be used. Some traders, particularly new traders, are not well versed with what transport document to follow with which trade term. Terms such as FOB, CFR and CIF are only meant for carriage by sea or waterway only where Bill of Lading or Non-Negotiable Seaway Bill should be stipulated in the LC. Terms such as Ex-work, FAS, CIP, CPT and etc where one mode of transport are used should be followed with a multimodal transport document.

Generally, the details on the transport document should include the following information:
1. An indication that it has been issued by a ‘named carrier or his agent’
2. A description of the goods in general terms not conflicting with description in the LC
3. Identifying marks and numbers
4. The name of the carrying vessel in the case of a Marne Bill of Lading, or the name of the intended carrying vessel in the case of a multimodal transport document including sea transport
5. An indication of dispatch or taking in charge of the goods or loading on board, as the case may be
6. An indication of the place of such dispatch or taking in charge or loading on board and the place of final destination
7. The name of shipper, consignee (if not made out ‘to order’) and the name and address of any ‘notify’ party
8. Whether freight has been paid or still to be paid
9. The number of originals issued to the consignor if issued in more than one original
10. Date of issuance of the transport document

The date of issuance of the transport document is very important and critical, firstly, to show whether the goods have been shipped in time, if the LC stipulates a latest date for shipment.

Secondly, it is important to meet the requirement that the documents must be presented for payment, acceptance or negotiation, as the case may be, within the validity of the LC and within 21 days from the date of issuance of the transport document unless the LC stipulates some other period of time.

Another importance is to determine the acceptability of the insurance document which, unless otherwise stipulated in the LC, or unless it appears it appears from the insurance document that the cover is effective at the latest from the date of shipment of the goods, must be dated not later than such date of shipment (loading on board or dispatch or taking in charge).

Traders are also to scrutinize and ensure that if a transport document bears a superimposed clause or notation which expressly declares a defective condition of the goods and/or the packaging, it will not be acceptable unless acceptance of such clause is authorized in the LC. A transport document specifically stating that the goods are or will be loaded on deck is also not acceptable unless expressly authorized in the LC.

Presentation of documents

A freely negotiable LC with the expiry date on the 01st of December, 2007. Beneficiary presents the documents to his bank in his country on 30th of November 2007. The documents are not negotiated but instead redirected to the issuing Bank by courier service and reached the issuing Bank on the 05th of December, 2007.

Is the LC deemed to be expired? Is it a discrepancy?

One participant from India suggested that it is a discrepancy because the LC reached the Issuing Bank after the 01st of December, 2007.

Article 2 of UCP600 states that “presentation means either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered”.

In layman term, the beneficiary has the option, either to send the documents to his bank or to the issuing bank if the issuing bank is also in his country. In the case where trading parties domicile within the same country or within the same vicinity, the beneficiary may send the documents directly to the issuing bank. For example, the LC is issued by Maybank, in Kuala Lumpur that is the buyer’s bank and the seller is also in Kuala Lumpur where he maintains an account with Stanchart which also in Kuala Lumpur. The beneficiary may either send the documents directly to the issuing bank, that is Maybank or he may also send the said documents to his bank that is Stanchart. When the documents reached the counter either one of these banks, he is said to have made a ‘presentation’ and therefore, he owes no further obligation as far as presentation is concerned.

Article 6(d)(i) of UCP 600 clearly states that "...an expiry date stated for honour or negotiation will be deemed to be an expiry date for presentation..." Article 6(d)(ii) further states "...the place for presentation under a credit available with any bank is that of any bank..."

From this point onwards, responsibility shifts to the nominated bank to examine the documents to determine whether or not the documents comply with other terms and conditions of the LC. It may take 1 day, 2 days or more but not to exceed 5 banking days.

To escape refusal by bank, the beneficiary must also ensure that the documents reach the bank within the validity of the presentation period which is within the expiry date of the LC.

Upon receipt of the said documents from the nominated bank, the issuing bank must first establish the date on which the presentation was made at the nominated bank. This is only a matter of checking the date on the covering schedule provided for by the nominated bank. The date indicated on the covering schedule is deemed to be the date on which the presentation is made at the nominated bank. This is the routine process in checking the documents by banks. If the indicated date is before the expiry of the LC, it is not a discrepancy.

More information, click the following links:

Examination of documents under LC

The principle of strict compliance is ruled by articles 14, 15 and 16 of the UCP 600. Article 14(a) obliges the bank to examine all documents stipulated in the credit to ascertain on the basis of the documents alone, whether or not they appear, on their face, to constitute a complying presentation. That is in compliance with the terms and conditions of the Credit. Compliance of the stipulated documents on their face with the terms and conditions of the credit shall be determined by international standard banking practice as reflected in the UCP 600. Therefore documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance.

That standard is applicable only for stipulated documents; documents which are not stipulated will not be examined and shall be returned to presenter or be passed without responsibility. Banks shall have reasonable time for examination, not to exceed five banking days following the day of receipt of the documents, and for determination whether to take up the documents or to refuse payment. Banks will deem conditions as not stated and disregard them if a credit contains such conditions without stating the documents to be presented.

Banks, which can be the issuing bank, the nominated bank or the confirming bank, must determine of the documents alone whether or not they appear on their face to be in compliance with the terms or not. If they appear not to be in compliance, banks may refuse to take up the documents. The bank hereby has got latitude when judging, which it need because not every error leads to a rejection and many problems can be solved by communication between bank, applicant and beneficiary. But the bank is obliged to decide on its own. If the issuing bank determines documents to be not in compliance, it may in its sole judgment approach the applicant for a waiver of the discrepancies.

Article 16(f) rules that if the issuing or the confirming bank fail to act in accordance with the provisions provided for in Article 16, they shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the credit.

The issuing bank and a confirming bank are not relieved from any of their obligations or provisions of article 16. Banker´s examination consists of three steps:

the completeness of the stipulated documents,
the compliance on their face and if they are in accordance with each other and
the terms and conditions of the letter of credit.

Documents are complete if all stipulated documents are presented and if each document contains the stipulated number of duplicates. The compliance ‘on their face’ means that there must not be obvious falsifications and errors. The documents are in accordance with each other if they do not contain contradictions.

Discrepant documents:Rights of the bank

I'm quite sure that all members have fully understood what LC means and how it operates in international trade. All members are also savvy of what seller and buyer should do when LC is used as a method of trade settlement.

What will happen if the seller tendered discrepant documents to the bank? According to studies, discrepant documents consist of 60% of the total documents tendered under LC worldwide. It simply means that, majority of documents handled by banks are discrepant documents. I personally have handled hundreds of thousand of them.

Under UCP 600, the Issuing bank has the absolute right to reject and refuse payment when documents are found discrepant, without prior reference to the buyer as per article 16(a) UCP 600. This means, the bank will list down all discrepancies, indicate statement of refusal and send it to the seller's bank via SWIFT MT734 format. The documents will also be returned to the seller's bank. End of the process.

When seller tenders discrepant documents, he locks dead the situation, he would not get his payment and the buyer on the other hand, would not get the shipment. In this case, the bank is the only party who can unlock this grave situation.UCP 500 article 16(b) permits the Issuing bank to seek for waiver from the buyer whether or not the buyer agrees to accept the discrepant documents.

Bear in mind that seeking for waiver or obtaining agreement to accept the discrepancy from the buyer is not an obligation on the part of the Issuing bank. This clearly indicates that the best way to avoid further risk to the bank is to reject and refuse the payment. This is the first priority for the Issuing bank.

I personally, during my career, always seek for waiver from the buyer. I mean all the time, whenever I received a discrepant documents. The main reason for doing this is because of the purpose and function of the LC itself. It is very clear that the LC is an instrument of PAYMENT.

Secondly, the main considerations in trade are payment and goods. Buyer is absolutely in need of the shipment. The moment the Issuing bank issues the LC, it signifies the intention of the buyer to purchase and to pay. When seller tenders the required document, he agrees to accept the payment. So, in most cases, payment is still be made. But of course, when buyer accepts the discrepant documents, it must be accompanied with an indemnity because who knows what lies in the container at the port.

Having said this, it doesn't mean that seller is permitted to tender discrepant documents. The right of the bank under this situation is to reject and refuse the payment.

Discrepant documents

I have two shipment from Shanghai to UK, both of them LC at Sight, Now I shipped both shipment to the UK at once. I just afraid if he refused to collect the documents, then how I can collect the payment or What I can do in the next term. Should I need to collect the cargo back? this is will let me loose lot of money in the freight which I already paid and getting back means again I need to pay the freight and taxes & duties. then what is the best way I need to adopt in such kind of situation. please mail me if you have any suggestions. kind regards.

Firstly, both of the shipments are under LC. Therefore you need not worry about the payment as long as you tendered the documents in accordance to the terms and conditions of the LC even if the goods are shipped on the same vessel.

Secondly, if you are sure the documents are discrepant, than you may communicate with the buyer with the view to amend the LC. However, this method may not be favoured by the buyer as he may not have sufficient time to do so. This would also mean that the buyer incur additional cost.

Other than this, you may request your bank to send the documents under protection to the Issuing Bank. If the documents meet the approval of the Issuing Bank, payment will be made in due course.

Alternatively, you may request your bank to communicate to the Issuing Bank the discrepancies and inquire if the Issuing Bank is willing to take up the documents before the documents are sent to the Issuing Bank.

However, if the Issuing Bank refuses to take up the documents and the buyer does not agree to waive the discrepancy, you have to arrange the goods to be sold to other party either in your country or in another country. Of course, this would incur additional costs.

Get in touch with your carrier on how to dispose the goods effectively.