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 requires that the total amount of the drawings 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 different situations here, and it is important to distinguish between them.

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 paragraph C8 also recognizes that an invoice may indicate a deduction covering an advance payment, discount, etc., that is not stated in the credit.

In your first example, the L/C states:

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

To limit the amount claimed under the L/C to USD 100,000 while showing an invoice amount exceeding the credit amount, the beneficiary should present an invoice showing:

Goods: 500 MT × USD 200 = USD 100,000
Additional amount: USD 2,000
Total invoice value: USD 102,000
Claim amount under the L/C: USD 100,000

In this case, the invoice is issued for USD 102,000, exceeding the L/C amount of USD 100,000, while the amount claimed under the L/C is limited to USD 100,000.

Under Article 18(b), the nominated bank acting on its nomination, confirming bank or issuing bank may accept the invoice for USD 102,000, provided that the conditions of that sub-article are satisfied.

However, it is important to distinguish between the invoice amount and the amount claimed under the credit.

The invoice may show an amount exceeding the L/C amount, but the amount honoured or negotiated under the L/C must not exceed the amount permitted by the credit.

Therefore, although the invoice shows USD 102,000, the beneficiary claims only USD 100,000 under the L/C.

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

Under UCP 600 Article 30(b), a tolerance of up to 5% more or less than the quantity of the goods is permitted, provided that all the conditions of that sub-article are satisfied.

Therefore, the beneficiary may present 525 MT, representing a 5% increase over the quantity stipulated in the credit.

However, at the unit price of USD 200 per MT, the gross invoice value would be USD 105,000, exceeding the L/C amount of USD 100,000.

To limit the amount claimed under the L/C to USD 100,000, the beneficiary may present an invoice showing:

Quantity: 525 MT
Unit price: USD 200 per MT
Gross invoice amount: USD 105,000
Less: Discount: USD 5,000
Net invoice amount: USD 100,000
Claim amount under the L/C: USD 100,000

ISBP 821 paragraph C8 provides that an invoice may indicate a deduction covering an advance payment, discount, etc., that is not stated in the credit.

Accordingly, the invoice may show the gross value of the goods and the discount, resulting in a net invoice amount of USD 100,000.

In this case, the quantity of 525 MT falls within the tolerance permitted by Article 30(b), and the amount claimed under the L/C does not exceed USD 100,000.

There is no need to invoke Article 18(b) because the invoice, after the deduction, does not show a final amount exceeding the amount permitted by the credit.

Article 18(b) would be relevant to a different situation, where the invoice itself is issued for an amount exceeding the amount permitted by the credit, as discussed in Point 1.

3. Can Article 18(b) save an invoice exceeding the L/C amount?

Let us now consider a situation in which the beneficiary presents an invoice showing:

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

No discount or other deduction is indicated, and the amount claimed under the L/C is USD 100,000.

In this case, the invoice is issued for an amount exceeding the amount permitted by the credit. UCP 600 Article 18(b) therefore becomes relevant.

Under this sub-article, a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may accept such an invoice, provided that the bank concerned has not honoured or negotiated for an amount in excess of the amount permitted by the credit.

However, Article 18(b) does not override the condition in Article 30(b) that the total amount of the drawings must not exceed the amount of the credit.

Therefore, although the bank may accept the invoice showing USD 105,000, the amount honoured or negotiated under the L/C must not exceed USD 100,000.

The distinction is straightforward: Article 18(b) may permit acceptance of an invoice exceeding the credit amount, but it does not permit a drawing exceeding that amount.

Article 18(b) gives the relevant bank discretion to accept the invoice; it does not automatically make every aspect of the presentation compliant.

4. My conclusion

I would summarize the interaction as follows.

UCP 600 Article 30(b)

Allows a quantity tolerance of up to 5%, subject to its conditions, including that the total amount of the drawings must not exceed the amount of the credit.

ISBP 821 paragraph C8

Allows an invoice to indicate a deduction covering an advance payment, discount, etc., even if that deduction is not stated in the credit.

UCP 600 Article 18(b)

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

In the discounted-invoice example, the gross value is USD 105,000, but after deducting USD 5,000, the net invoice amount and the amount claimed are both USD 100,000. ISBP 821 C8 is relevant, and there is no need to rely on Article 18(b).

In the example where the invoice shows USD 105,000 without a deduction, Article 18(b) may allow the bank to accept the invoice, provided that its conditions are satisfied. Nevertheless, the amount honoured or negotiated under the L/C must not exceed USD 100,000.

The key distinction is:

Invoice value is not necessarily the same as the amount claimed under the L/C.

And that, I believe, is the key to understanding how Articles 18(b) and 30(b), together with ISBP 821 C8, may operate in these scenarios.

A final thought

This is one of those UCP 600 questions where the wording of separate provisions 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 with this interpretation? Or do you see a different interaction between Articles 18(b) and 30(b), particularly when the gross invoice value exceeds the credit amount but the amount claimed does not?

Comments and alternative views are most welcome.

Best regards,
Mr. Old Man