Difference between a Pre-advise and a Non Operative LC

[shahriar]

dear friends,

i need your opinion on issuance of a non operative letter of credit.

1.how do u differentiate between a pre-advise and a non operative letter of credit
2. if someone includes the following clause, will you count it non operative?

field 46a:

* This credit is inoperative and not available for drawing till we send an amendment to the effect, quote //our credit no. xxxxx. dated xxxx for USD xxxxx is now operative and available for drawing. All other terms and condition of the original lc will remain unchanged.// unquote. the original advised amendment must be presented at the time of negotiation and without it presentation will not be honored. Beneficiary must also certify that they have accepted this amendment.

3. what are the possible legal consequences of a such a letter of credit?

thanks!!

[Md.zakir Hossen]

01.I think you know better this question answer.
02.It is non operative credit.
03.Will any beneficiary will work on it?

[ajoy]

01.I think you know better this question answer.
02.It is non operative credit.
03.Will any beneficiary will work on it?

My 2 bits on the lines that if an inopertaive LC had absolutely no use than no applicant would ask for it :

Q3. Will bene work on it : Most bene's donot or at least should not start working on such LCs. But in practice I have seen some cases over the years where bene 's OK with such credits.

Could be out of sheer ignorance / failure to understand the implications but most times it is because the original contracts are still being finallized and the LC issued would be amended once all formalities are completed.

Bene plans to work on such LCs only after the LC is made operative. Bene might want such an LC to assure itself that the applicant ( mostly new business partner for bene) can arrange for an LC ( i.e has adequate facility with IB) once the contract is signed/finalized.
Likewise a bene also can check that the applicant's bank ( probably new to the bene) is acceptabble to its own bankers and capable of issuing an LC correctly as per thier requirements.

An inoperative LC in other words is assuarane to the bene that the applicant and /or the IB are serious players in the market before they sign off the contract with a new applicant/buyer.

From the applicant's prespective an Inoperative LC is good in such circumstances because there is no need to block up /utilize thier limits before the contract is finally signed off. Once that happens the applicant can arrange the required amendment.

Other thoughts welcome.

[jmitra]

the inoperative letter of credit clause presented here is fully unconditional. the beneficiary is nothing to do to make it operative. not sure why the applicant is looking for such a credit. most probably the applicant wants to assure that he is in process of issuing a operative lc once certain terms are fulfilled. in my opinion, these could be achieved through a bank comfort letter.