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What Are Compliant Documents?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 04 September 2016
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    Conjecture Corporation
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Compliant documents adhere to the terms and conditions associated with a letter of credit, allowing a bank to release a payment to a seller on behalf of a buyer. Letters of credit are used in trade transactions, particularly internationally, to facilitate the movement of funds and offer some protection to both parties involved. Under the terms, when the seller ships the goods to the buyer and prepares documentation, it can be presented to the bank for payment. The bank examines these documents to determine if they are compliant, and releases a payment.

This process starts with an agreement between buyer and seller, which will include a detailed description of the goods being sold. This is used in the generation of the letter of credit, so the bank has something to compare to the documents presented by the seller. When the documentation is assembled, it needs to be complete, and it needs to match the description of the order given to the bank by the buyer. Discrepancies can result in a rejection, and no payment for the seller.

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Banks tend to be very careful when examining documentation, because they want to provide a guarantee to the buyer that payment won’t be issued for an erroneous shipment. This can sometimes result in rejections for relatively minor reasons. For example, a textile order might describe a fabric color as “salmon” in documents sent to the bank, while the seller describes it as “pink.” The bank may decide the order is no longer compliant, and it will withhold payment.

Before sellers send a package of information to the bank, they may check for discrepancies that could cause a bank to reject payment. Compliant documents should describe the shipment accurately and correctly, with no falsifications. Sellers can consult the original sales agreement to make sure they are shipping what the buyer asked for and to check for small variants that might cause a problem with the payment processing. If the bank decides the seller didn’t submit compliant documents, it will be necessary to process the transaction again.

The term “compliant documents” is also used in several other ways. Travelers need to maintain compliant documents for crossing borders, for example, with all necessary features to pass customs inspection. These can include a clear photograph, detailed demographic information, and appropriate stamps and endorsements. Documents may also need to adhere with codes and protocols established by an agency in order to be accepted for activities like applying for grants.

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