Additional Costs and Unit Price Adjustments Under an L/C

Introduction

Mr. Old Man received two questions concerning commercial invoices presented under a letter of credit (L/C): whether additional charges can be included in the invoice when the L/C allows a tolerance, and whether the unit price can be reduced when it is not specified in the L/C.

Question

Dear Mr. Old Man,

I have two questions and would appreciate your advice.

Question 1: Incorporating B/L Amendment Costs into the Invoice Value

Field 47A of the L/C contains the following clause:

“IN CASE OF AMOUNT OVERDRAWN AND SUBJECT TO THE ISSUING BANK’S ACCEPTANCE, A FEE OF 1/8PCT PER MONTH (MIN 2 MTHS, MIN SGD75.00 OR EQUIVALENT IN THE CURRENCY OF THE CREDIT) FOR ACCOUNT OF BENEFICIARY SHALL BE LEVIED ON THE OVERDRAWN AMOUNT.”

The L/C allows a 10% tolerance in the amount.

For this shipment, we incurred USD 200 in additional charges for amending the bill of lading (B/L). We intend to include this amount in the commercial invoice so that the customer can pay it together with the invoice amount. If we ask the customer to remit the USD 200 separately, the bank charges would be USD 50, meaning that we would receive only USD 150.

Would it be acceptable to include the additional USD 200 in the commercial invoice, provided that the total amount remains within the tolerance permitted under the L/C?

Question 2: Reducing the Unit Price When It Is Not Specified in the L/C

The L/C stipulates the following:

• L/C amount: USD 130,520
• Quantity: 104 MTS, as stated in Field 45A
• Tolerance: 10% for both amount and quantity
• Unit price: Not specified in the L/C

After the L/C was issued, we agreed with the applicant to reduce the unit price while maintaining the original quantity of 104 MTS.

The revised unit price is USD 1,230/MT, resulting in a total invoice amount of USD 127,920.

The revised amount remains within the 10% tolerance permitted under the L/C.

Would presenting documents with the reduced invoice amount be considered compliant with the L/C?

My understanding is that, since the L/C does not specify the unit price, we are entitled to adjust it, provided that the total invoice amount remains within the permitted tolerance.

I would appreciate your advice.

Thank you.

Best regards,
Khanh Linh

______

Answer

Dear Linh,

Thank you for your questions.

1. Including the Cost of B/L Amendment in the Invoice Value

The clause quoted above addresses the situation in which the amount presented under the L/C exceeds the available credit amount. Such an overdrawn amount is subject to the issuing bank’s acceptance, and the specified fee will be charged to the beneficiary if the issuing bank accepts it.

Your question does not specify whether the L/C stipulates the quantity and unit price of the goods.

If the L/C does not stipulate the unit price or otherwise restrict the invoice value, your company may incorporate the USD 200 cost of amending the B/L into the unit price or the total invoice value, rather than showing it as a separate charge, provided that the invoice complies with the L/C terms, including the permitted tolerance.

In that case, the presentation would not constitute an overdrawn amount merely because the invoice value includes this cost.

However, if the L/C specifies the unit price or contains other relevant restrictions, the matter would need to be examined in light of those terms.

1. Reducing the Unit Price When It Is Not Specified in the L/C

I agree with your understanding, subject to the other terms and conditions of the L/C.

Where the L/C does not stipulate the unit price, a reduction in the unit price agreed upon between the beneficiary and the applicant would not, in itself, constitute a discrepancy, provided that the documents comply with the L/C terms and the invoice amount remains within the permitted tolerance.

In this case, the revised invoice amount of USD 127,920 is within the permitted range of the L/C amount. Accordingly, the presentation would not constitute an overdrawn amount.

Best regards,
Mr. Old Man