Can Article 18(b) Save an Invoice Exceeding the L/C Amount When Article 30(b) Applies?

A Question Worth Discussing

This is an interesting question from Ahtisham that made me stop and think about the interaction between UCP 600 Articles 18(b) and 30(b).

At first glance, the two provisions seem to point in different directions.

Article 30(b) permits a quantity tolerance of up to 5%, but expressly says that the total amount of the drawings must not exceed the amount of the credit.

Article 18(b), on the other hand, allows a nominated bank acting on its nomination, a confirming bank or the issuing bank to accept a commercial invoice issued for an amount in excess of the amount permitted by the credit, subject to the conditions stated in that article.

So what happens when the quantity is increased within the 5% tolerance, but the resulting invoice value exceeds the L/C amount?

Here is Ahtisham’s question and my view. Other trade finance practitioners are very welcome to share their comments, particularly if they see this interaction differently.

QUESTION

Dear Sir,

I have two questions regarding the following example.

The L/C states:

• Quantity: 500 MT of sugar
• Unit price: USD 200 per MT
• L/C value: USD 100,000

The invoice presented shows:

500 MT × USD 200 per MT = USD 100,000
Advance received = USD 2,000
Total invoice value = USD 102,000

Can this be treated as an example where the quantity and unit price remain exactly as stated in the credit, but the invoice amount exceeds the L/C amount, and yet the invoice may be acceptable to the nominated bank, confirming bank or issuing bank under UCP 600 Article 18(b)?

My second question is regarding Article 30(b).

If the L/C states:

Quantity: 500 MT
Unit price: USD 200 per MT

Article 30(b) allows a tolerance of up to 5% in quantity. Therefore, can the beneficiary present:

Quantity: 525 MT
Unit price: USD 200 per MT
Total invoice value: USD 105,000

The quantity of 525 MT is within the 5% tolerance.

However, the invoice amount exceeds the L/C amount of USD 100,000.

I was thinking that Article 30(b) applies to the quantity, not to the amount. Therefore, 525 MT may be acceptable, but the resulting invoice amount of USD 105,000 appears to be in excess of the amount permitted by the credit.

Would Article 18(b) save the case?

Please also let me have your answer to this particular scenario.

Best regards,
Ahtisham

____

ANSWER

Dear Ahtisham,

Thank you for your interesting questions.

I think there are actually two different situations here, and it is important not to mix them up.

1. Invoice amount exceeding the L/C amount

UCP 600 Article 18(b) provides that a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may accept a commercial invoice issued for an amount in excess of the amount permitted by the credit, provided that the bank concerned has not honoured or negotiated for an amount in excess of the amount permitted by the credit.

ISBP 821 C8 also recognizes that an invoice may indicate a deduction covering, for example, an advance payment or discount that is not stated in the credit.

Therefore, in your first example:

Goods: 500 MT × USD 200 = USD 100,000
Advance received: USD 2,000
Total invoice value: USD 102,000

the invoice may show a total value of USD 102,000, even though the L/C amount is USD 100,000.

Article 18(b) may allow the nominated bank acting on its nomination, confirming bank or issuing bank to accept such an invoice, subject to the conditions of Article 18(b).

However, there is an important distinction:

The invoice amount may exceed the amount of the credit, but the amount drawn under the credit cannot exceed the amount of the credit.

Thus, the fact that the invoice shows USD 102,000 does not entitle the beneficiary to draw USD 102,000 under a USD 100,000 L/C.

The maximum amount that can be honoured or negotiated under the L/C remains USD 100,000.

2. What happens when Article 30(b) is involved?

Now we come to the more interesting part of your question.

Suppose the L/C states:

Quantity: 500 MT
Unit price: USD 200 per MT
L/C amount: USD 100,000

The beneficiary presents:

Quantity: 525 MT
Unit price: USD 200 per MT
Invoice value: USD 105,000

525 MT represents exactly a 5% increase over 500 MT.

Therefore, assuming all the other conditions of Article 30(b) are satisfied, 525 MT is within the quantity tolerance permitted by Article 30(b).

But there is a second part of Article 30(b) that cannot be ignored.

The tolerance is permitted only provided that:

the total amount of the drawings does not exceed the amount of the credit.

Therefore, Article 30(b) does not permit a drawing of USD 105,000.

This is where I think your question is particularly interesting.

The quantity and the drawing amount have to be looked at separately.

Quantity:

500 MT + 5% = 525 MT

So the quantity is acceptable.

Calculation of invoice value:

525 MT × USD 200 = USD 105,000

So the invoice may show a value of USD 105,000.

Amount demanded/drawn under the L/C:

USD 100,000 maximum

Therefore, Article 30(b) does not permit the beneficiary to demand USD 105,000 under the L/C.

3. Can Article 18(b) save the USD 105,000 invoice?

In my view, yes — but Article 18(b) saves the invoice, not the excess drawing.

This distinction is important.

Article 30(b) deals with the quantity tolerance and expressly limits the total amount of drawings to the amount of the credit.

Article 18(b), on the other hand, deals specifically with the commercial invoice amount.

Therefore, I would see no contradiction in the following situation:

Quantity: 525 MT
Unit price: USD 200/MT
Invoice value: USD 105,000
Amount claimed/drawn under the L/C: USD 100,000

The invoice shows the actual value of the goods:

525 MT × USD 200 = USD 105,000.

But the beneficiary does not claim more than USD 100,000 under the L/C.

In this situation, the 525 MT can be supported by the 5% tolerance under Article 30(b), while the USD 105,000 invoice amount may be accepted under Article 18(b), subject to the conditions of that article.

What Article 18(b) cannot do is transform the USD 105,000 invoice value into a USD 105,000 drawing under a USD 100,000 L/C.

4. My conclusion

I would summarize the interaction as follows:

Article 30(b)

Allows the quantity to increase by up to 5%, subject to its conditions, but the total amount of the drawings must not exceed the amount of the credit.

Article 18(b)

Allows the relevant bank, under the conditions stated in that article, to accept a commercial invoice issued for an amount exceeding the amount permitted by the credit.

Therefore:

So, yes, in my view Article 18(b) may save the USD 105,000 invoice, but it does not save a USD 105,000 drawing.

The distinction is:

Invoice value ≠ amount available for drawing under the L/C.

And that, I believe, is the key to reconciling Articles 18(b) and 30(b) in this particular case.

A final thought

This is one of those UCP 600 questions where the wording of two separate articles becomes particularly interesting when they meet in the same transaction.

I have set out my understanding above, but I would be very interested to hear from other trade finance practitioners, CDCS holders, bankers and ICC/UCP specialists.

Do you agree that Article 18(b) can allow the USD 105,000 invoice to be accepted, while Article 30(b) limits the drawing to USD 100,000? Or do you see a different interaction between these two provisions?

Comments and alternative views are most welcome.

Best regards,
Mr. Old Man