by Roy Becker

The Uniform Customs and Practice for Documentary Credits (UCP) states: "The description of the goods, services or performances in a commercial invoice must correspond with that appearing in the credit." (Article 18 c) What does this mean to an exporter? What does it mean to a bank?

Every letter of credit will indicate a description of the merchandise covered by the letter of credit. Does the bank expect to see the merchandise description on the invoice exactly as shown on the letter of credit? What about punctuation, capital letters and spaces?

In a workshop on letters of credit for a staff of commodity traders from a grain company, they said that they became frustrated by their bank's interpretation of a letter of credit. The letter of credit described the merchandise as "#2 Yellow Corn or Better." The company shipped #1 Yellow Corn and described it on the invoice as "#1 Yellow Corn."

Astonished, they said, "The bank rejected the invoice! Why would they do that?"

Bankers cannot develop expertise in all kinds of merchandise they see in the documents that come across their desks. In the first 10 minutes on the job, a commodity trader likely learns the grading system for corn. However, bankers have no expertise as commodity traders. How does a banker know #1 is better than #2? Maybe #3 is better than #2.

Since bankers can't possibly know everything about every type of merchandise, their limited role should include nothing more than precisely comparing the merchandise description on the invoice to that on the letter of credit. One insightful attorney advised me early in my career, "You are only required to compare, not interpret." Good advice.

What possible alternatives do the traders have? Since the invoice must match the letter of credit, traders might prepare an invoice that describes the merchandise with a caption identical to the letter of credit: "#2 Yellow Corn or Better." Then, below the caption the invoice might carry a notation: "merchandise actually shipped: #1 Yellow Corn." Since this is not in conflict, a bank should find it acceptable.

Regardless of the actual goods shipped, the merchandise description shown on the invoice must precisely match the description stated in the letter of credit in order for the exporter to receive payment. This principle is the cornerstone of strict compliance.

The UCP goes on to state, "Banks deal with documents and not with goods, services or performance to which the documents may relate." (Article 5) In other words, a bank does not care what goods might have actually been shipped or even if any goods have been shipped at all. An exporter must simply supply documents that strictly comply with the terms of the letter of credit to collect payment from it. The bank does not concern itself with the underlying sales contract and the shipment itself.