DISCREPANCY OF “EARLY PRESENTATION”

QUESTION

Dear Mr. Old Man,

Occasionally LCs have clause like-

48: after 21days after BL date but within validity of LC

Or another unique case

48: 21/ refer 47A

47A: After 21days of shipment but within validity of LC

I believe it should rather have a clause stating, payment will be effected 21 days after BL, if the intention is not to pay earlier than this period.

Early presentation has nothing to do with discrepancy in the docs rather an intention not to pay at sight.

Would you agree? Occasionally, we get caught up where a checker overlooks this presentation period of after 21 days leading to a refusal and finally IB paying after 21 days from BL date.

Maybe this should be taken up in the ISBP revision.

Regards

Rohini

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ANSWER

Hi,

If the LC is issued with the condition that documents are to be presented after 21 days after BL date but within the LC validity, the documents must be presented within that period to comply with the terms and conditions of the LC. The issuing bank may refuse the documents that are presented earlier that that period and may return the documents to the presenter. However, if the documents are re-presented within the specified period for presentation, the issuing bank must honour.

The issuing bank’s notice of refusal may state:

(1) that it is holding the documents pending further instructions from the presenter; or

(2) that it is returning; or

(3) that it is acting in accordance with instructions previously received from the presenter.

For case (1), the presenter should instruct the issuing bank to hold the documents until 21 days after the after BL date and to make payment as instructed.

For case (2), the presenter must ensure that the documents are re-presented within the LC validity.

In order to avoid the above cases, the presenter should include the following instructions in its covering letter addressed to the issuing bank : “In the event that the attached documents are received by you less than 21 days after the BL date, please hold the documents until 21 days after the after BL date and make payment as instructed”.

My view is based partly on ICC Opinion TA. 826rev and partly on my previous answers on the same topic.

Regarding your suggestion that LC should include a deferred payment clause instead of  a presentation clause that prevents documents from being presented earlier that 21 days after BL date, I ever answered a similar question in DCPro Forum more than 10 years ago explaining the reason why the applicant would insist on the clause that prevents documents from being presented early rather than the deferred payment clause.

For your reference, I quote here below the Q&A:

QUOTE

DANIEL: Could I know why documents must not be presented earlier than 10 days after B/L date?

N.H.DUC: It may take one month or longer to ship the goods, for example, from Long Beach (USA) to Da Nang Port (Vietnam) or vice versus. Hence, if the documents are presented as usual, i.e., right after shipment date, the applicant may pay at least 10 days earlier (while the goods are still somewhere on the sea). Such a provision in L/C may help the applicant delay the payment for 10 days, which means that he may save some money (interest payable due to early payment). Some importers would make full use of this bad practice, especially when the shipment is of high value.

I think that is the reason why sometimes the documents are required to be presented not earlier than 10 days after B/L date.

DANIEL: I thought so but, in that case, it would be easier to arrange a deferred payment

N.H.DUC: It’s true that arranging a deferred payment or an acceptance L/C is more convenient. I have seen U.S importers who import goods from Asian countries having their LC available at 30 or 45 days sight.

Still, it is not always easy for importers in some countries which are enforcing the policy of foreign debt restrictions to open such a type of L/C. Imports to be paid by deferred payment L/Cs are regarded as one of the forms of foreign borrowings. Therefore, importers in the said countries are not allowed to open deferred payment L/Cs or are allowed with hard-to-meet conditions or with complicated formalities.

I take my country as an example. Fifteen years ago or more my country’s government ever imposed the same policy on deferred payment L/Cs. That is to say, the importer who wanted to open deferred payment L/C had to pledge deposit of 70% of L/C amount to secure the payment right at the time applying for opening L/C. The government did not prohibit importers to open deferred payment L/Cs but it was obvious that wise importers would never open L/Cs with such a condition.

What described above perhaps is strange in your country or at least to you, isn’t it?

The case in the query may have nothing to do with the same situation as described above. The reason may lie in the selling policy of the exporter or in the fact that the exporter, for some reason, feels unsafe with deferred payment L/C. Moreover, you may agree with me that 10 days is much shorter than 30 days sight or after B/L date which is the shortest tenor normally used in deferred payment L/Cs.

UNQUOTE

Best regards,

Mr. Old Man