Home Mr Old Man DRAFTS UNDER LETTERS OF CREDIT, CONFIRMATION, PART PAYMENTS UNDER DOCUMENTARY COLLECTIONS

DRAFTS UNDER LETTERS OF CREDIT, CONFIRMATION, PART PAYMENTS UNDER DOCUMENTARY COLLECTIONS

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QUESTION

Hi

Your blog is super helpful for a beginner like me.

I have some doubt about drafts and confirmation on LC and collections.

  1. Could you please brief about Field 41a. There are 5 types of payment terms, how drafts are to be prepared, and the drawbacks and drawbacks of each payment term?

BY ACCEPTANCE

BY DEF PAYMENT

BY MIXED PYMT

BY NEGOTIATION

BY PAYMENT

  1. Field 49 confirmation instructions there are 3 options and what will be the implications on draft each case?

CONFIRM The requested confirmation party is requested to confirm the credit
MAY ADD The requested confirmation party may add its confirmation to the credit
WITHOUT No confirmation is requested.

3. Collection can we do in part by part payment? By submitting multiple drafts is it possible?

  1. Could you please elaborate on Transfer LC and Standby LC?

Thanks in advance

Sudheesh

—–

ANSWER

Hi,

Thank you for your high appreciation of my blog. However, I do not have much time to answer many questions at a time. So, one question at a time is always welcomed.

  1. It depends on the applicant’s application for issuing LC, LC issued may be available:

+ by payment with the issuing bank or the nominated bank or the confirming bank (if any)

+ by deferred payment with the issuing bank or the nominated bank or the confirming bank (if any)

Note: No drafts are required under LC available by payment or deferred payment

+ by negotiation of sight drafts (or sometimes time drafts) with the nominated bank or the confirming bank

+ by acceptance of time drafts with the issuing bank or the nominated bank or the confirming bank (if any)

Note: Drafts are required under LC available by negotiation or by acceptance

+ by mixed payment, e.g.,

  • 20% of LC value payable at sight as an advance payment against invoice
  • 70% of LC value payable at sight against shipping documents required at Field 46A
  • 10% of LC value payable against installation completion certificate issued by the beneficiary and counter-signed by the applicant whose signature will follow by mail.
  1. Field 49 specifies confirmation instructions which may include CONFIRM, MAY ADD and WITHOUT.

+ CONFIRM means the advising bank is requested to confirm the LC, while MAY ADD means the advising bank may confirm the LC if it agrees to and WITHOUT means the advising bank is not requested to add its confirmation to the LC.

Assuming the LC is confirmed, there are following scenarios:

  • Where the LC is available by payment or deferred payment, it is available with the confirming bank by payment at sight or incurring a deferred payment.
  • Where the LC is available by negotiation, it is available the confirming bank by negotiation of drafts drawn on the issuing bank
  • Where the LC is available by acceptance, it is available the confirming bank by acceptance of drafts drawn on the confirming bank.

3. Whether or not a documentary collection transaction can be paid in part payments depends on the collection instructions, e.g., the documents are released against payment of draft at sight for USD 50,000 and against acceptance of draft at 90 days after BLdate for USD 50,000.

  1. No time to answer Question 4.

Best regards,

Mr. Old Man

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2 Comments

  1. Edwin Kwok

    June 29, 2023 at 3:03 am

    Dear Old Man:

    Hi! We are a trading company in Africa trying to import products from Vietnam paid by LC. Our bank has to work with a bank in the UK to issue the LC. However, the UK bank cannot accept the fields 41D(Available Any Bank by negotiation) and 42C (at sight) together which are requested by the Vietnamese exporter. Besides, our bank in Africa has no relationship with any bank in Vietnam so they cannot directly deal with our supplier’s bank without using a higher-rate international bank as an intermediary bank to confirm the LC. Right now it has become a deadlock without any solution. Could you comment what causes the problem? Is any remedy possible? Many thanks!

    Edwin

    Reply

    • Mr Old Man

      June 30, 2023 at 9:41 am

      Hi,
      I don’t understand why the UK bank does not accept the LC available with any bank by negotiation. So what type of availability will the UK bank accept? I think the LC available with the UK bank (issuing bank) by payment may be accepted by both the Vietnamese and the UK bank.
      So, please contact the UK bank as well as the Vietnamese exporter asking whether they accept the LC available with issuing bank (UK bank) by payment. If so, the transaction can be proceeded after getting their agreement.
      Last but not least, the Vietnamese exporter may accept the LC issued by an African bank and confirmed by the UK bank provided the LC is available with the confirming bank by payment, even by negotiation. Also try this option.
      Best regards,
      Mr. Old Man

      Reply

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