What You’ll Learn

After completing this lesson, you will be able to:

  • Verify that drawing documents comply with the terms and conditions of the Export Letter of Credit.
  • Explain the international standards governing document examination.
  • Identify and manage discrepancies in documentary presentations.
  • Verify reimbursement and settlement procedures.
  • Obtain the required authorisation before releasing payment.
  • Authorise and release drawing documents in accordance with bank policies and international banking practice.

Overview

Once an Export Letter of Credit has been advised and the exporter has shipped the goods, the next critical stage is the examination of the documents presented for payment. Banks do not examine the goods themselves; instead, they determine whether the documents presented comply with the terms and conditions of the Letter of Credit.

Document examination requires precision, sound judgement and strict compliance with internationally accepted banking practices. Banking professionals must identify discrepancies, verify reimbursement arrangements and ensure that all authorisations have been obtained before payment is released.

This lesson explores the document examination process, the standards applied during document checking and the procedures for authorising and releasing drawing documents.

1. Understanding Drawing Documents

Drawing documents are the collection of documents presented by the beneficiary to claim payment under an Export Letter of Credit.

These documents commonly include:

  • Commercial Invoice.
  • Bill of Lading or other Transport Document.
  • Insurance Certificate or Policy.
  • Certificate of Origin.
  • Packing List.
  • Inspection Certificates.
  • Draft (Bill of Exchange), where applicable.

Banks examine these documents rather than the physical goods being traded.

2. International Standards for Document Examination

Banks examine documents in accordance with internationally recognised banking standards.

The principal standards include:

  • Uniform Customs and Practice for Documentary Credits (UCP 600).
  • International Standard Banking Practice (ISBP).
  • International Chamber of Commerce (ICC) Opinions, where applicable.

These standards ensure consistency in the examination of documentary credits throughout international banking.

Illustration: Document Examination Process


Receive Documents
        │
        ▼
Check LC Compliance
        │
        ▼
Identify Discrepancies
        │
        ▼
Verify Reimbursement
        │
        ▼
Obtain Authorisation
        │
        ▼
Release Documents / Payment

Figure 1: The document examination and authorisation process for an Export Letter of Credit.

3. Standard for Examining Documents

Banks must examine documents with reasonable care to determine whether they appear, on their face, to comply with the terms and conditions of the Letter of Credit.

During the examination process, banking professionals should:

  • Compare every document with the Letter of Credit.
  • Verify consistency between documents.
  • Ensure documentary requirements have been satisfied.
  • Apply recognised international banking practice.
  • Exercise sound professional judgement.

Document examination requires experience as well as knowledge of the applicable banking rules.

4. Checking Documents for Compliance

When examining drawing documents, banking professionals should verify:

  • The Letter of Credit remains valid.
  • Shipment occurred before the latest shipment date.
  • Documents were presented within the permitted presentation period.
  • Goods descriptions match the Letter of Credit.
  • Transport documents comply with the required terms.
  • Insurance documents satisfy the Letter of Credit conditions.
  • Required signatures and endorsements are present.
  • All required documents have been submitted.

Only compliant documentary presentations should proceed to payment.

5. Common Documentary Discrepancies

The learner guide identifies several common discrepancies that may result in documents being rejected.

Examples include:

  • Expired Letter of Credit.
  • Late shipment.
  • Late presentation of documents.
  • Unsigned drafts.
  • Incorrect draft amounts.
  • Invoice details inconsistent with the Letter of Credit.
  • Incorrect Certificate of Origin.
  • Incorrect transport documents.
  • Missing onboard notation.
  • Incorrect insurance documentation.
  • Inconsistent packing lists.
  • Incorrect export licence.

Each discrepancy should be evaluated in accordance with the applicable Letter of Credit terms and international banking practice.

6. Handling Discrepancies

When discrepancies are identified, banking professionals should:

  • Record the discrepancy accurately.
  • Determine its significance.
  • Notify the client or relevant bank.
  • Apply UCP and bank procedures.
  • Obtain further instructions where required.

Payment should only proceed when the discrepancy has been resolved or handled according to the applicable procedures.

7. Reimbursement and Settlement

Before payment is released, the reimbursement process should be verified.

The bank should confirm:

  • Reimbursement instructions.
  • Applicable reimbursement undertaking.
  • Settlement method.
  • Compliance with Letter of Credit terms.
  • Internal authorisation requirements.

Accurate reimbursement protects the financial interests of both the bank and the customer.  

8. Authorising the Release of Drawing Documents

Drawing documents should only be authorised after:

  • Documentary compliance has been confirmed.
  • Discrepancies have been resolved appropriately.
  • Settlement arrangements have been verified.
  • Required credit approvals have been obtained.
  • Internal banking procedures have been followed.

Where approval authority is insufficient, the transaction should be referred to a higher authority in accordance with the bank’s policies.  

Practical Example

A South African exporter presents drawing documents under an Export Letter of Credit.

The Trade Finance Officer:

  • Verifies that the Letter of Credit has not expired.
  • Reviews the commercial invoice and transport documents.
  • Confirms that shipment occurred before the latest shipment date.
  • Identifies no documentary discrepancies.
  • Verifies reimbursement arrangements.
  • Obtains final authorisation.
  • Releases the drawing documents for settlement.

Because all documentary requirements have been satisfied, payment proceeds in accordance with the Letter of Credit.

Key Terms

Term Meaning
Drawing Documents The documents presented by the beneficiary to obtain payment under a Letter of Credit.
UCP 600 The Uniform Customs and Practice for Documentary Credits published by the International Chamber of Commerce.
ISBP International Standard Banking Practice used when examining documents under documentary credits.
Documentary Discrepancy A difference between the documents presented and the requirements of the Letter of Credit.
Reimbursement The process through which payment is recovered between banks after settlement.

Key Notes

  • Banks examine documents rather than the physical goods.
  • Documentary examination should comply with UCP 600, ISBP and recognised international banking practice.
  • All drawing documents should be checked carefully for compliance.
  • Documentary discrepancies should be handled according to bank procedures.
  • Reimbursement and settlement should be verified before payment is released.
  • Drawing documents should only be authorised after all procedural and approval requirements have been satisfied.
PreviousNext