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Hey!!

I have an importer who wants to issue an LC in favor of an exporter in India. Now the proforma invoice shows that there will be USD 25000 paid in advance by TT. Our bank will make that payment. Now how should we construct the LC? Should we issue a LC for the full value while saying that 25000 will be paid in advance or should we issue LC for the reduced amount? If we issue LC for the reduced amount, can we call it a “Mixed Payment” LC?

Hi Pal,

I understand that this is not a mixed payment l/c, but only a l/c covering the supply for a given percentage. Documents must represent the full value of goods, specially if an insurance document is required, it must cover 110% of invoice gross value, etc. The invoice will be show an advance payment of the difference, already made. ISBP 681 point 60 is clear.

Other comments appreciated

Ciao

Hi,

Suppose the total amount of pro-forma invoice or contract is USD100,000.00 of which USD25,000.00 is to be paid in advance by T.T and the balance is to be paid by LC at sight.

The payment of USD25,000.00 is understood to be effected outside LC, therefore, you just issue LC for the balance amount only, i.e., USD75,000.00.

Field 32 (Currency, Amount): USD75,000.00
Field 42 C (Draft at): SIGHT FOR 75 PCT OF INVOICE VALUE or SIGHT FOR USD75,000.00

Picant is right. This is not a mixed payment LC.

Best regards,
Nguyen Huu Duc

thanks for your answers. i also guessed so. but the problem is that the LC will cover several types of merchandise with different unit price. i am confused over how to reconcile the quantity and unit price with the LC value. should i include a clause in the LC to show USD 25000 as advance payment?

Dear Nura,
.
The total value of goods should not be equivalent to Lc value. You may indicate each merchandise with their unit price whose total will be higher than LC value.
.
We often face similar situations, we issue lc for the net amount to be paid but request invoice to be issued in gross value stating the advance payment and add a clause to field 47A for clarification.
.
regards

ICC Opinion 361

Provided a bank operates within the scope of sub-Article 37(b), it should accept a presentation of documents which shows a deduction for an advance payment. Ideally, reference to this prior payment should be reflected in the credit terms to avoid any unnecessary problems at the time of presentation.

this is impossible. the quoted ICC official opinion R361 is correct. but this opinion matches with R292 word by word!! :!:
how is it possible?! i have counter checked at DCpro. does anyone know about it?

one thing to note here. it is very important to design to the insurance clause very carefully. if the LC says insurance for 110% of the invoice value, then that may lead to insurance coverage for the remaining value only. the correct wording should be 110% of the CIF value.

i think the ISBP paragraph needs to be consider as far as the insurance coverage is concern

178. If it is apparent from the credit or from the documents that the final invoice amount only represents a certain part of the gross value of the goods (e.g., due to discounts, pre-payments or the like, or because part of the value of the goods is to be paid at a later date), the calculation of insurance cover must be based on the full gross value of the goods.

Hello Every one;

It's my first time in this forum.
My opinion is that if the applicant calling for a simple receipt we should include the amount of advance payment in the field 32B so the advance payment can be effected after the issuance of the MT 700

Regards

if the advance payment will be paid outside the l/c the l/c should not be issued by Mixed payment and the invoice may show such advance payment without any commitment on the issuing bank but if you will the l/c and the issuing/beneficiary's bank will pay the l/c it must be issued available by Mixed payment.

i personally dont understand why to include a advance payment in letter of credit transaction. if im paying in advance, whats the necessity of undertaking for that part

The Lc should be issued for an amount less the USD25000, as the USD25000 is not part of the funds.
But it can just be mentioned on field 47A that documents for the full proforma invoice value will be presented as payment has been made outside the LC.
Mixed payment can only come up if the LC is available by two payment types, maybe Sight and Defered Payment.
Thanks
Okey

hi
We quite often issue l/cs with prepayments and insert a simple clause in field 47a stating
Invoice to show full value of the goods less prepayment of xxxxx. Quite often a customer wishes to receive a downpayment in order to assist with the production of goods etc or it may be that it is quicker to effect a TT payment than to follow the l/c processes.