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CHANGING PAYMENT TERMS OF THE LC

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Trở lại Cửa Khẻm

QUESTION

Dear Sir.

Need a clarification on transferable LC regarding clause 42C.

– If the original LC mentions LC at sight, can the 1st beneficiary change this to LC 30 days usance when transferring this LC to the 2nd beneficiary ( if the 2nd beneficiary agrees to LC 30 days).

If a sight LC is transferred as a sight LC, we forsee this problem : The 2nd beneficiary after shipment will send the original documents to the 1st beneficiary’s bank for payment on sight basis. The bank that transferred this LC won’t have the money for this draft and will then have to wait for 15 days for the payment to come from the buyer’s bank, after the 1st beneficiary switches the invoice and bill of exchange.

Hence, can the LC be transferred for a usance period of around 30 days, enough time to get the payment from buyer’s bank. Or will the shipper have to wait for 15 to 20 days for the payment from the 1st beneficiary’s bank?

Pls advise early.

Thanks
V.
———-

ANSWER

Dear V.

Article 38 (g) says that the transferred LC must accurately reflect the terms and conditions of the LC with specific exceptions (i) the amount of the LC, (ii) any unit price, (iii) the expiry date, (iv) the period for presentation or the latest shipment date or given period for shipment, any or all of which may be reduced or curtailed.

So, the 1st beneficiary cannot change the payment terms from sight basis to usance basis when transferring the LC to the 2nd beneficiary. Only the agreement between the 1st beneficiary and the 2nd beneficiary is not sufficient for the transferring bank to transfer the LC with such a change.

Trở lại Cửa Khẻm
There’s no need for the 1st beneficiary to insist on such a change because unless the transferring bank is the confirming bank, under the transferred LC the transferring bank would undertake to pay the 2nd beneficiary only after receipt of the proceeds from the issuing bank whether the LC is payable at sight or at xxx days sight.
Regards,

Mr. Old Man
#mroldman.net

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31 Comments

  1. anonymous

    November 18, 2013 at 8:11 pm

    Vinod writes:Dear SirTnks for yr response. Noted that the payment terms cannot be changed. Rgds

    Reply

  2. m3mpower

    April 18, 2017 at 4:55 pm

    Hi Mr Old Man

    I have a question please.
    The LC was done by the applicant for an amount of 50k , this was then modified to 45k, but the applicant only wants to charge materials up to 40k, and then says he will cancel the rest.
    Is this possible ?

    Thank you

    Reply

    • mroldman

      April 18, 2017 at 5:04 pm

      The L/C can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary. The applicant is not in position to cancel the L/C.

      Reply

      • m3mpower

        April 18, 2017 at 5:07 pm

        So the applicant and the beneficiary if they both agree, they can apply to their bank, correct ?

        Reply

      • mroldman

        April 18, 2017 at 5:43 pm

        Provided the issuing bank agrees

        Reply

        • m3mpower

          April 20, 2017 at 7:36 pm

          Hi Mr Old Man

          since you are the expert, i’d like to ask you 2 questions please.

          1- i have a LC, where the customer asks for the original documents to be sent directly to him by DHL, and the copies through the bank, the BL’s are at the order of the applicant, not at the order of the issuing bank.
          Is there a risk sending the container under these conditions ?

          2- how long does the first advisory bank have before they have to notify the credit to the beneficiary’s bank?
          I ask this because three days ago the issuing bank sent a swift to the intermediary bank, but the intermediary bank has still not notified the beneficiary’s bank.

          Thank you very much

          Reply

          • mroldman

            April 21, 2017 at 6:50 pm

            1/ provided full set of original b/l is sent to the issuing bank, there’s no risk for the bank with regard to the control of the cargo.

            2/ There is no provision of how long but the first advising bank should normally transmit the LC to the second advising bank (beneficiary’s bank) immediately . 3 days is a long time, not common!

          • m3mpower

            April 24, 2017 at 4:50 am

            Hi Mr Old Man
            There is only one set of original BL ( 3 x BL ).
            Customer asks for 2/3 BL to be sent directly to him, with all other original documents ( EUR1, EXA, Invoice…etc ).
            And 1/3 BL to be sent to the bank with photocopies of the rest.
            The BL in this case is to the order of the applicant.
            I have seen other cases where the BL is to the order of the issuing bank, but in this case it is different.
            Let me know please

            Thanks

          • mroldman

            May 1, 2017 at 8:50 pm

            The issuing bank would not agree to issue L/C with that odd requirement unless the L/C is fully secured with cash deposit.

      • m3mpower

        May 12, 2017 at 2:46 pm

        Hi Mr Old Man
        L/C secured by cash deposit? do you mean that the bank will deduct the money from the applicant’s account at the time of issuing the L/C?

        Thanks

        Reply

        • mroldman

          May 12, 2017 at 4:53 pm

          Where the L/C is secured by cash deposit, the issuing bank may hold the applicant’s account for an amount equivalent to the L/C amount or for an agreed amount. The issuing bank may debit such amount and transfer into the pledged account in the name of the applicant.

          Reply

  3. Danushka

    April 23, 2017 at 6:31 pm

    Dear Mr. Old Man,

    As per Article 14 (g) of UCP, document presented that not required by the credit can be disregarded. Also, article 14 (d) states that data should not conflict with each document. So if the credit doesn’t required for a certificate of origin and the documents presented a contains a COO and there data is conflicted with some other documents , for Example: COO, GW of the goods showed as 2000 kg where as BL and packing List GW is 2050KG can we call a discrepancy or can we ignore the COO and be silent?

    Reply

    • mroldman

      May 1, 2017 at 8:44 pm

      If c/o not required is presented, it should be disregarded. You cannot raise any discrepancy contained in the c/o.

      Reply

  4. Danushka

    April 28, 2017 at 6:41 pm

    Dear Sir,

    Under filed 46A, we have asked for a,
    “CERTIFICATE OF JAPANESE ORIGIN”.

    Document presented does not contain a certificate of Origin, instead beneficiary has certified that goods are of Japan Origin in the invoice. Is it acceptable?

    Thks in Advance

    Danushka

    Reply

    • mroldman

      May 1, 2017 at 8:54 pm

      Discrepancy. Missing c/o!

      Reply

    • Danushka

      May 3, 2017 at 8:42 pm

      What if the invoice has been signed by the beneficiary? Will it change the position?

      Reply

  5. Danushka

    May 4, 2017 at 2:41 pm

    We (Issuing Bank) have received a Bill of Lading without stating the date of issue. However, it has a dated on board notation. So can we consider the dated on board date as the issue date of the BL or is it discrepant?

    Reply

    • mroldman

      May 5, 2017 at 4:44 pm

      I see that UCP 600 just refers to the case where the date of issuance of the bill of lading is deemed to be the date of shipment unless the bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment. I see nowhere in the UCP says that the date of shipment is deemed to be the date of issuance of the bill of lading.
      There have been divided opinions among experts as to whether the bill of lading that does not indicate the date of issuance but the on board date is acceptable. However, majority say it is acceptable, no discrepancy.

      Reply

      • Danushka

        May 5, 2017 at 6:10 pm

        Thk you Mr. Old Man.

        Reply

  6. zafar hussain

    May 7, 2017 at 3:28 pm

    Sir,
    Please note our client from India wanted to open an LC with Applicant’s company name and address from Seychelles, while the issuing bank is Standard chartered bank, Hong kong and the destination of shipment is Mundra Port, Gujarat, India.
    Bill of lading consigned to the order blank endorsed as per the draft copy of LC.
    Payment terms : Drafts at 90 days from the date of BL.
    Since, the applicant’s address is Seychelles and the issuing bank is SCB, Hongkong, and the destination of the goods is Gujarat, India, with BL issued to order blank endorsed notify Applicant and XYZ Paints, Gujarat, Can we prepare document with Applicant’s Seychelles address? How the shipment will be cleared from Indian customs, when the applicants address is Seychelles? Can you please explain us whether Blank endorsed is applicable, as applicant and the destination of goods in two different places?
    Awaiting reply,

    Reply

    • mroldman

      May 8, 2017 at 2:05 pm

      Hi,

      I think that the applicant is not the end buyer but a trader who has signed a contract to resell the goods to XYZ Paints, Gujarat . So, it is XYZ Paints, Gujarat that will clear and take delivery of the goods. If so, the bill of lading made out to order and blank endorsed is quite appropriate in this case.

      Kind regards,
      Mr. Old Man

      Reply

  7. Danushka

    May 8, 2017 at 11:53 am

    Dear Mr. Old Man,

    If LC maturity date has stated as “60Days after invoice date”, does the draft required the maturity date to be indicated according to ISPB para B2(b) ? i.e. one of the five ways…

    BR

    Danushka

    Reply

    • mroldman

      May 8, 2017 at 3:13 pm

      Hi,

      The tenor stated on a draft is to be in accordance with the terms of the L/C. So, based on ISBP, the tenor in this case can be indicated on the draft as follows: 60 days after invoice date, e.g., 14 May 2017.

      Kind regards,
      Mr. Old Man

      Reply

      • Danushka

        May 8, 2017 at 8:17 pm

        So if the draft states as “60 days after invoice date” without mentioning the actual invoice date i.e.14 May 2017, is it discrepant?

        Reply

        • mroldman

          May 9, 2017 at 11:22 am

          Discrepant! It’s ok if invoice date is indicated somewhere on the face of the draft.

          Reply

  8. Danushka

    May 12, 2017 at 1:24 pm

    Dear Mr. Old Man,

    We have asked for a “Manually signed commercial invoice in four copies”. Documents presented contains an invoice with a heading “TAX INVOICE”. As per ISBP C1(b) when a credit requires a presentation of commercial invoice, this will also be satisfied by the presentation of “invoice”, even when such document contains a statement that it has been issued for tax purposes. So is it discrepant? because I don’t see a statement in the invoice instead it has titled as “TAX Invoice”.

    BR

    Danushka

    Reply

    • mroldman

      May 12, 2017 at 4:44 pm

      According to ISBP, invoice that contains a statement that it has been issued for tax purposes is acceptable. I think tax invoice is issued for tax purposes, so it is acceptable.

      Reply

      • Danushka

        May 12, 2017 at 5:34 pm

        Thks Mr. Old Man

        Reply

  9. Danushka

    May 15, 2017 at 11:57 pm

    Dear Mr. Old Man,

    Just came across a BL presented today stating “SOB 02.05.2017” where we have asked for a full set shipped on board bill of lading. So can we consider the abbreviation SOB as shipped on board? Because we don’t know what exactly SOB stands for! Would you accept the BL?

    Thanks in Advance

    Danushka

    Reply

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