What to Do If Documents Are Dishonoured?



What to Do If Documents Are Dishonoured? :




When documents are presented by the beneficiary and are found not to be in accordance with the terms of the letter of credit, the following courses of action are available.


The documents may be corrected if possible. However, this option is only applicable if the discrepancies are such that the beneficiary, shipping company or whoever is concerned is able to correct the discrepancies before the expiry of the letter of credit and within the period of time allowed for presentation of the documents.


If the discrepancies cannot be corrected, the beneficiary’s bank may request authority from the issuing bank to negotiate the draft, despite the discrepancies.


If, in the case of a sight draft, the beneficiary wishes to receive the proceeds of the drawing immediately, then an indemnity may be the expedient method.


Under the indemnity the beneficiary agrees to indemnify the negotiating bank for payment of principal, interest and any other loss resulting from the refusal of the issuing bank to honour the drawing due to non-conformity of the documents.


If the discrepancies are considered minor, the beneficiary’s bank may be prepared to negotiate the draft “under reserve”; it being understood the beneficiary’s bank will have recourse to the beneficiary if the discrepancies are unacceptable to the issuing bank.


As a last resort, documents may be sent to the issuing bank on an “approval” basis. The documents to be delivered to the buyer only against the buyer’s authority to pay or accept.




























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What to Do If Documents Are Dishonoured?
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