INVOICE SHOWING A DEDUCTION COVERING ADVANCE PAYMENT, DISCOUNT…

QUESTION

May I ask you, have you ever sought answer from ICC members who composed ISBP. They must have had reason adding paragraph C7 in ISBP, mustn’t they?

LC

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ANSWER

Dear LC,

I do not think it’s necessary to ask for ICC members’s explanation why ICC provides  in ISBP 745 that an invoice may indicate a deduction covering advance payment, discount, etc., that is not stated in the LC.

The fact that ICC provides paragraph C7 ISBP 745 may be based on international trade practices where the buyer and the seller may agree that an advance payment is to be made outside LC and the remaining amount of the contract is to be paid by LC or where the seller, for some reason, grants the buyer a discount.

An invoice showing a deduction covering an advance payment or a ‘discount’ being granted would not be a reason, in itself, to reject the documents.

Kind regards,

Mr. Old Man

Please also read the following Q&A:                           

UNDERDRAWN?

QUESTION

Hi,

Please find below the case related to LC amount underdrawn:

LC extracts:

LC amount USD 45,250.00
Partial shipment is allowed.
LC doesn’t states about the tolerance in quantity and amount.

Description of goods:

1000 Leather hand bags made out of sheep leather with following colour:

Black: 250 pcs – Unit price: USD 40 per pc
Brown: 250 pcs Unit price: USD 45 per pc
Tan: 250 pcs – Unit price: USD 47 per pc
Aqua bluse: 250 pcs – Unit price: USD 49 per pc

The commercial invoice evidences full shipment of goods as per field 45A and evidences Total amount USD 45,200.00, Less deposit 20% USD 9050.00 and mentioned as net amount payable as USD 36,200.00. Please note the draft is also drawn for the amount USD 36,200.00.

Nowhere in the LC evidences discount or Less deposit will be allowed.

The issuing bank rejected the documents stating that LC amount is underdrawn. But nominated bank contested the refusal stating that it complies according the ISBP para C7 which states: An invoice may indicate a deduction covering advance payment, discount, etc., that is not stated in the credit.

Please comments your views whether the issuing bank is correct in rejecting the documents citing the discrepancy LC amount is overdrawn.

Regards
Vijay
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ANSWER

Dear Vijay,

Last week I answered a question similar to yours.

1) Is it a discrepancy if the invoice indicates a deduction covering advance payment, discount etc. that is not stated in the LC?

I agree with the nominated bank’s view that there is no discrepancy as per paragraph C7 ISBP 745, which says an invoice indicate a deduction covering advance payment, discount, etc., that is not stated in the LC
The deduction in your case is a form of discount which could be up to any amount. There’s no discrepancy.

2) Is the discrepancy “underdrawn/short drawn” raised by the issuing bank valid?

On DCPro Discussion Forum there have been at least two discussions on this topic, and of course there have been divided opinions on the issue.

Some opine that as the invoice showing a deduction is acceptable, the amount claimed less than the amount permitted by the LC is acceptable. There is no discrepancy (short drawn), whereas some others say it is a discrepancy (underdrawn or short drawn).

I am on the side of those who say that there is no discrepancy. Underdrawn or short drawn in this specific case is acceptable.
If full shipment is made and full amount of goods shipped is indicated, why does the issuing bank/applicant refuse to pay just because the beneficiary claims for the amount less than that permitted by the LC.

Just ask yourself: If you were the applicant, would you like to pay full amount or pay less than full amount?

Perhaps, you know the answer already.

Kind regards,
Mr. Old Man