Key Takeaways
- A discrepancy is any point where the documents fall short of the credit, the rules it incorporates or international standard banking practice. Once one is found, the bank’s duty to pay falls away until it is cured or waived.
- Most refusals stem from dates and deadlines, not from the goods. Expiry, last shipment day and the presentation window cause more trouble than wording.
- A bank that refuses must send one notice, by the fifth banking day after presentation, listing every discrepancy it relies on. It cannot add new grounds later, and a defective notice can cost it the right to refuse.
- A refusal is not the end of the transaction. Check whether each discrepancy is genuine, then correct and re-present within validity, ask the buyer to waive, or let the documents go forward on an approval basis.
- A waiver hands leverage to the buyer, who may use the delay to renegotiate price or terms.
- Hong Kong firms face an extra timing risk: typhoon and rainstorm closures that can land on an expiry date and may not extend it.
A letter of credit only pays out when the paperwork passes a bank’s check. When an exporter’s file contains even one error that the bank treats as material, the payment promise is suspended, and control of the deal quietly moves to the buyer, who can accept the mistake, ask for a discount or walk away.
That gap between “shipped” and “paid” is where letter of credit discrepancies do their damage. This guide is written for the moment something goes wrong, or is about to: what banks actually count as a discrepancy, the UCP 600 rules behind the refusals Hong Kong exporters see most, what a valid refusal notice must contain, the options once one arrives, a step-by-step response plan, and a local risk many firms overlook: bank closures during typhoons and black rainstorms. If you are still assembling a presentation, start with our guide to Hong Kong L/C documents and UCP 600 requirements, which covers the documents a credit can call for and how to prepare them.
What Counts as a Letter of Credit Discrepancy?
A letter of credit discrepancy is a mismatch that stops a presentation from being “complying”. Under UCP 600 Article 14, the checking bank tests the paperwork against three yardsticks: the terms of the credit, the applicable articles of UCP 600, and international standard banking practice, which the ICC sets out in ISBP 821. A file that fails any one of these can be refused, even if the shipment itself went perfectly.
Not every flaw is a discrepancy. ISBP treats a misspelling or typing error that does not change the meaning of a word or sentence as harmless, and a bank may disregard any extra document the credit never asked for. Data in different documents also need not be identical, only free of conflict. The test is whether the error affects what the document is supposed to evidence, not whether it looks untidy, and knowing these limits is what lets an exporter push back on a weak refusal.
The UCP 600 Rules Behind Many Discrepancies
Many refusals come from a specific UCP 600 rule the exporter did not know about, rather than from careless typing. The rules below are the ones Hong Kong traders most often run into. For document-by-document checks on invoices, transport documents and certificates, see the Hong Kong L/C document checklist.
|
Area |
Rule that is easy to miss |
How to avoid the discrepancy |
|
Invoice value |
A bank may accept an invoice for more than the credit amount, but it will never pay above the credit value (Article 18(b)). |
Keep the invoice total within the available balance. Bill any excess outside the credit. |
|
Words such as “about” |
“About” or “approximately” before the amount, quantity or unit price allows a 10% swing either way (Article 30(a)). |
Only rely on the margin where the credit uses that word, and only for the figure it qualifies. |
|
Bulk quantity |
Without such wording, a 5% quantity tolerance applies to goods not counted in packing units or individual items, provided the drawing stays within the credit amount (Article 30(b)). |
Do not apply the 5% rule to cartons, pieces or sets; it covers bulk goods such as tonnes or litres. |
|
Insurance amount |
Where the credit is silent on cover, the minimum is 110% of the CIF or CIP value (Article 28(f)(ii)). |
Ask the insurer to calculate cover on the CIF or CIP figure, not just the invoice total. |
|
Dates with “on or about” |
“On or about” a date means five calendar days before until five days after, both inclusive (Article 3). |
Plan shipment inside that 11-day window rather than at its edges. |
|
“Clean” transport document |
A bill of lading becomes unacceptable if it carries a clause stating that the goods or packaging are defective (Article 27). |
Inspect packing before loading and query any remark the carrier adds before the document is signed. |
|
Charter party bills |
A standard bill of lading must not show that it is governed by a charter party unless the credit allows one (Article 20). |
Confirm the document type with the forwarder before booking bulk or tramp shipments. |
|
Partial shipments |
Partial shipments and drawings are allowed unless the credit forbids them (Article 31). |
Check the credit’s partial shipment field before splitting a consignment. |
What a Valid Refusal Notice Must Contain?
UCP 600 Article 16 sets a strict procedure for refusals. Read every notice against it: a notice that misses any of these points may be defective, and that can shift the outcome in the exporter’s favour.
- One notice only. The refusing bank must send a single notice that says it is refusing, lists each discrepancy it relies on and states what it is doing with the documents.
- Four permitted positions. The bank must say it is holding the documents pending instructions, holding them until the applicant waives (issuing bank only), returning them, or acting on instructions the presenter gave earlier.
- Fast delivery. The notice must go out by telecommunication or another quick method no later than the close of the fifth banking day after the day of presentation.
- No second chances. A bank that does not follow this procedure loses the right to argue that the documents fail to comply.
- Waivers are optional. The issuing bank may, at its sole judgement, ask the applicant whether it will accept the discrepancies, but doing so does not lengthen the five-day period.
- Fees. UCP 600 does not fix discrepancy charges, but many credits list one in the charges field, and it is normally deducted from the proceeds.
Why Timing Is the Biggest Discrepancy Risk?
An ICC technical briefing found that the most frequent discrepancies relate to timing: the expiry date, the shipment date and the presentation period. A typing error can usually be fixed with a corrected page. A missed deadline usually cannot, because a new document cannot change the date of an event that has already happened.
In Hong Kong, the calendar is also exposed to the weather. When a severe tropical cyclone or rainstorm signal is up, banks, couriers and freight offices can all stop work, sometimes for more than a day.
STATISTIC: Hong Kong had 14 tropical cyclones requiring warning signals in 2025, the highest annual number since 1946 and more than double the long-term average of about six. Hurricane Signal No. 10 was hoisted twice, equalling the 1964 record, and five Black Rainstorm Warnings set a new annual record.
STATISTIC-SOURCE:
Your Options After Documents Are Refused
A refusal notice starts a negotiation rather than ending the deal. The right response depends on whether the fault can still be fixed before the credit expires.
Option | How it works | Main risk for the exporter |
Correct and re-present | Replace or fix the faulty documents and present them again to the same bank. | Only possible while the credit and presentation period are still open, and useless for a late shipment. |
Applicant waiver | The issuing bank asks the buyer whether it will accept the discrepancies and pay anyway. | Payment now depends on the buyer’s goodwill, and the buyer may ask for a discount first. |
Approval or collection basis | The nominated bank forwards the documents to the issuing bank without paying, asking it to obtain approval. | No bank undertaking applies until the issuing bank accepts; in practice, it becomes a documentary collection. |
Payment under reserve or indemnity | The nominated bank pays now, but keeps a right to claim the money back if the issuing bank later refuses. | The exporter carries the refund risk and may need a facility or security with its bank. |
Amendment of the credit | Before presenting, ask the buyer to amend terms, for example to extend the expiry or shipment date. | Needs the buyer and issuing bank to agree, takes time, and usually carries a fee. |
Typhoons, Black Rainstorms and Expiry Dates in Hong Kong
UCP 600 has two different outcomes for a bank closure, and which one applies matters a great deal. Under Article 29(a), if the expiry date or last day for presentation falls on a day the bank is closed for ordinary reasons, such as a public holiday, the deadline rolls forward to the next banking day. Article 29 does not move the latest shipment date.
Article 36 is the exception. Where business is interrupted by Acts of God or other causes beyond the bank’s control, the bank is not liable, and it will not honour or negotiate a credit that expired during the interruption once it reopens. Trade finance commentators generally list storms and other natural disasters among these force majeure events, so a Hong Kong exporter should not assume that a typhoon or black rainstorm closure on the final day will buy an extra day.
The practical answer is to keep a buffer. Aim to present several banking days before expiry during the typhoon season, ask the nominated bank how it treats weather closures, and, for high-value deals, ask the buyer to include wording in the credit that extends expiry if the bank is closed because of a weather signal.
Seven Steps to Take When a Refusal Notice Arrives
- Note the deadlines that still apply. Record the date of presentation and the date the notice arrived, then work out how much time is left before the presentation period and the credit expire. During the typhoon season, allow a buffer for possible weather closures.
- Test the notice against Article 16. Confirm that it is a single notice, that it went out by the fifth banking day after presentation, that it lists each discrepancy and that it states what the bank is doing with the documents. If anything is missing, raise it with the bank in writing at once.
- Check whether each discrepancy is genuine. Compare every point with the credit wording, the relevant UCP 600 article and ISBP 821. A typing error that does not change the meaning, or data that differ without conflicting, may not be a valid ground. Challenge it in writing, setting out the rule you rely on.
- Separate curable from incurable faults. A wrong figure or a missing signature can usually be fixed with a replacement document; a late shipment or late presentation cannot. This tells you whether re-presenting is still worth the effort or whether a waiver is the only route.
- Order corrected documents quickly. Ask the forwarder, insurer, chamber or inspection company that issued the faulty document for a properly authenticated replacement, and re-present to the same bank while the credit is still valid.
- Contact the buyer before the bank does. Explain the discrepancy and ask whether the buyer will waive it. A prompt, factual approach reduces the chance that the delay turns into a lever for a price cut.
- Instruct the bank and log the outcome. Tell the bank whether to hold, return or forward the documents, decide whether payment under reserve makes sense, and record each discrepancy with its cause, the fee charged and the fix, so the same error does not reach the next credit.
Prevention is still the cheaper fix. Before the next presentation, compare the goods description (field 45A), documents required (46A) and additional conditions (47A) of the SWIFT MT700 with each page, mark every “about” or tolerance and the figure it applies to, and have someone who did not prepare the file check it. The full preparation workflow is set out in our step-by-step guide to preparing a complying presentation.
How Premia TNC Helps Resolve Discrepancies
Premia TNC works with Hong Kong exporters and trading companies when a documentary credit runs into trouble, and on the steps that stop it happening again. Engagements can include reviewing bank refusal notices against UCP 600, preparing written responses to discrepancies that appear unfounded, coordinating corrected documents with forwarders, insurers and suppliers, supporting communication with buyers on waivers, and keeping a running log of past discrepancies for each client. We can also pre-check draft credits so that unworkable terms are amended before the buyer issues them.
Banks make the final call on whether a presentation complies, and specialist questions on law, sanctions or insurance should go to the right adviser. Our role is to help you respond quickly and correctly when a bank raises a discrepancy.
