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Dear all,
I would like to have your opinion on the below L/C i received in favor of a customer of mine.
L/C states: "90% of the L/C value shall be paid against simple receipt, and 10% of L/C value shall be paid against complied presentation".

My questions are: what should exactly "simple receipt" mean? Maybe that upon receipt of the L/C at our counters, advising it to the beneficiary, and informing the issuing bank of it, we shall receive 90%? Does this condition make the L/C a one with a red clause? And if yes - that is actually a financing by the importer to the exporter, prior to shipping the goods. What would happen, for example, if the exporter does not ship the goods, ever? Is it possible the issuing bank to request these 90% back?

Thank you in advance,

Hi Pal,

sometime banks are not properly informed about the relationship between buyer and seller. There is an old l/c clause called Red Clause that allows the beneficiary to have an advance under an l/c, probably to have cash at disposal to buy goods locally and send them later. If this opportunity is backed by a guarantee or warehouse receipt we have a green clause. Problems are to establish who pays interests and which bank advances, Issuing bank or beneficiary's bank, probably confirming.
Other comments appreciated
Ciao

Tipical documents is such a transaction are a simple receipt and a declaration given by beneficiary that he will ship the goods within L/c timeframe limits, otherwise it will refund the advance payment received. The 'receipt' is a document representing the confirmation of beneficiary that it has received the funds (even if it didn't cash the money at the time of declaration but, as it is known, the documents are the property of beneficiary until they have been honoured).
It is an advance payment settled through L/C - nothing special. It is also a prefinance of the export. The commercial matter and how buyer and seller agreed to settle the transaction is of no concern for the banks as per art 4 of UCP600. The question of evaluating risk of the failure of shipment is another story and it can be analysed on a similar scenario when you effect payment in advance by payment order. However, by way of L/C you have a small confort that by accepting the advance payment, beneficiary undertook to ship the goods as he states in his declaration.