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dear all,

today i found a LC issued by us bit confusing. the applicant wanna pay 10% after the installation of the machinery. so the clause given was

"90% of the invoice value will be presented after the presentation of shipping document. the rest 10% will be paid after the submission of the acceptance letter from the applicant"

the LC expires on 31st december. now does the clause means that the LC allows presentation of acceptance letter after the expiry of the LC?

iLC

Dear ILC,
From my point of view complying presentation has been bifurcated under this credit such as:
1. determination of complying presentation for 90% invoice value [assuming that partial shipment prohibited]
2. determination of remaining 10% on the basis of applicant acceptance letter.
issuing bank can not mingle the two condition.
second issue:
under your case, since there is no stipulation timeframe for applicant acceptance , it must be submitted within the last date of presentation stipulated in the credit.

more important risk issue to be noted:
from beneficiary point of view:
ISBP paragraph:4
:a credit should not require presentation of documents that are to be issued or countersigned by the applicant. If the credit is issued including such terms, the beneficiary must either seek amendment or comply with them and bear the risk of failure to do so.
From issuing bank point of view:
Suppose issuing bank released the shipping document to the applicant and subaequently applicant released the goods and duly make payment of 90% invoiced value, but later on for some reason, the applicant didn't provide acceptace letter and subsequently issuing abstrain from making remaining 10% value, under such position, the beneficiary MAY BE[I DON'T SAY IT MUST BECAUSE ITS ARGUMENTAL ISSUE]called upon issuing bank to return back its document which issuing bank unable to do so.
.
above all, the issuing bank's should have to stipulated a timeframe for presentation of acceptance letter by the applicant.
.
waiting for comments.
regards
nesar

i agree. the acceptance must be presented within the expiry of the LC.

mitra

I have seen several cases in Capital Machinery for Textile Mills even in a Steel Mill also. In those cases, it has been mentioned that 90% payment have to be made at sight and remaining 10% of LC have to be paid after six months on satisfactory operation of the machinery.

Even though ISBP tell us otherwise, some sellers accept this clause usually proposed by applicant, only to sell their Machineries.

We have to think that The applicant who has paid 90% of LC . must have accepted the document.

In those cases which I have handled, we have received 100% value of the LC from the applicant and kept it in the margin account. When the beneficiary's bank demands it after 6 months, we released those 10% after receiving confirmation from Applicant.

If applicant says that machinery are not working properly, we made a visit to the factory and after observation when we see that machinery are not working properly in reality, we have not made the payment.

So , it is not a new case.


I always agree to be disagreed.

Thanks

Dear cparial,
After six month of what, may be from the date of issuance of credit or date of shipment or date of completion of installment or date of commenment of operation...., it should be stipulated otherwise not precise. satisfactory operation of machinery should not be a basis for calculation because its cause uncertainity. however in our case, there is no stipulated time frame for presentation of applicant acceptance letter.
.
trade problem detected in such a time when we have nothing to do with but to face horrible situation.
.
There is no problem if payment is effect smoothly. problem arises when................................
regards
nesar

Hi Pals,

when a bank present to the issuing bank documents for an amount higher that credit amount must be write on cover letter that:

-Delivery of enclosed document is not contingent upon payment of said excess- or the like, so the bank will have no other undertaking to effect payment.

For the 10% to be paid after a Test or the like, the l/c must provide a specific document to be presented within a certain period, and the l/c will remain valid, for the 10% balance untill said expiry date:

Many l/c, moreover, stated that balance ... % will be paid against Test certificate to be presented within.... days or on dd/mm/yyyy without presentation of said certificate.

We have to follow the contractual conditions and "translate" them in UCP terms.

Hoping to be clear!

Ciao

IN MY FIRST 02 YEARS WORKING IN IMPORT DESHK I ISSUED LOT OF CREDIT HAVING 80% ON SIGHT PAYMENT AND REMAINING ON DELIVERY OF ACCEPTANCE OR CLEARANCE CERTIFICATE OF THE APPLICANT.ALL THIS CREDIT OPENED AGAINST CONTRACT BETWEEN BUYER AND SELLER. SPECIALLY THIS CREDIT WAS GOVERNMENT CREDIT OF DIRECTORATE GENERAL OF DEFENCE PURCHASE OF BANGLADESH AND SUPPLIER WAS ANOTHER GOVERNMENT WING.
THOGH ISBP HAS SOME RESERVATION REGARDING ANY ACCEPTANCE OR CLEARANCE CERTIFICATE BY THE APPLICANT.SUPPLIER NEVER MIND AS THERE IS A CONTRACT BETWEEN TWO GOVERNMENT WING.AND I HAVE NEVER FOUND ANY COMPLEXITY SUCH TYPE OF ACCEPTANCE OR CLEARANCE.

Dear Mr. Nesarul,


6 month is usually counted from the date of opening of LC or installation of machinery, whichever comes earlier. SO IT IS CLEAR THIS DATE IS CERTAINLY NOT WITHIN THE EXPIRY DATE OF CREDIT.


Thanks

dear cparial,

i understand your point. but your case and the case here has two different wordings. i guess your LCs includes a clause like

10% will be paid after the presentation of acceptance from applicant. the acceptance must be presented within six months from the day of first presentation. when you say this, you keep a contingent liability upto six month following the first presentation. in our case, how long will you keep it? there must be a definite deadline. and the most obvious is the expiry date.

you also said

We have to think that The applicant who has paid 90% of LC . must have accepted the document.

to me there is actually two presentation here. one is the original document and other is the acceptance from the applicant. and UCP says presentation must be made within the expiry of the LC. when you say that acceptance must be made within six months of the first presentation, you are actually modifying the UCP600 rules and extending the expiry for the second presentation.

regd

shahriar

In one place, I have said that it is a marketing strategy of the seller who is taking the risk of Non Payment after 6 month ( what has been cautioned in ISBP paragraph:4
:a credit should not require presentation of documents that are to be issued or countersigned by the applicant. If the credit is issued including such terms, the beneficiary must either seek amendment or comply with them and bear the risk of failure to do so).

The clause of " after 6 month..'' is a clause of LC which LC opening bank must honour.

I donot think that LC expiry date should be extended up to that period.


I always agree to be disagreed.

Thanks