PAYMENT CLAUSE IN TRANSFERRED LETTERS OF CREDIT

13 Comments

1. 

   Sam

   February 9, 2017 at 1:29 pm

   Pls someone explain me the tolorance in LC with example as i am answering my exam

   Reply

• 

  mroldman

  February 9, 2017 at 3:25 pm

  For your reference, I quote hereunder Article 30 UCP 600:

  Quote
  Article 30 Tolerance in Credit Amount, Quantity and Unit Prices

  a. The words “about” or “approximately” used in connection with the amount of the credit or the quantity or the unit price stated in the credit are to be construed as allowing a tolerance not to exceed 10% more or 10% less than the amount, the quantity or the unit price to which they refer.

  b. A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed, provided the credit does not state the quantity in terms of a stipulated number of packing units or individual items and the total amount of the drawings does not exceed the amount of the credit.

  c. Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the credit is allowed, provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not reduced or that sub-article 30 (b) is not applicable. This tolerance does not apply when the credit stipulates a specific tolerance or uses the expressions referred to in sub-article 30 (a).
  Unquote

  Please also google: “Tolerance” + “Mr. Old Man” to access many Q&A by Mr. Old Man regarding tolerance

  Reply

2. 

   sam

   February 10, 2017 at 3:26 pm

   thks just one clarificartion . if thr Dc is established for 10000 usd with a clause partial shipmnet not allowed and tolerance of 5 % upper or lower side. my question

   A } if we present invoice 5 % lower of the total DC value ( 5% of 10000 USD) is it loss for the beneficiary as he is supplying total qty in full but he get less paid . Pls expain

   B } if we present invoice 5 % higher it will means the amount in invoice presented by beneficiary will exceed DC value which will not be accepted by bank . Kinldy clarify

   Awaiting your reply thks for your cooperation

   Reply

• 

  mroldman

  February 11, 2017 at 9:50 am

  A) The situation in question is covered by UCP 600 sub-article 30 (c) where the terms are CFR or CIF and the price quotation is based on a hypothetical or soft quotation on the insurance premium and/or the freight charges. Upon presentation of the documents, the beneficiary invoices for the actual insurance and freight costs, which conceivably are less than those quoted originally in the purchase order. Therefore, a 5% tolerance is allowed in the beneficiary’s invoice, always provided that the quantity of the goods, if stipulated in the credit, is shipped in full, and a unit price, if stipulated in the L/C, is not reduced.

  An example to illustrate the point:
  • LC details:
  Credit amount: Not exceeding USD150,000
  Goods: 10 trucks
  Unit price: USD12,000/unit
  Delivery term: CFR Da Nang Port, Vietnam
  Freight charges as per actual freight invoice but not exceeding USD30,000
  • Invoice presented:
  Goods: 10 trucks
  Unit price: USD12,000/unit
  Freight charges: USD23,000.
  Total invoice amount: USD143,000 CFR Da Nang Port, Vietnam
  • Conclusion:
  Draft drawn for USD143,000 is acceptable as per UCP 600 sub-article 30 (c).
  .
  B) Bank may accept an invoice with amount higher than the L/C amount unless the beneficiary claims no more than the L/C amount.
  Sub-article 18 (b) UCP 600 allows the nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank to accept an invoice issued for an amount in excess of the amount permitted by the L/C, and its decision will be binding upon all parties, provided the bank in question has not honoured or negotiated for an amount in excess of that permitted by the L/C.

  Reply

• 

  sam

  February 11, 2017 at 8:57 pm

  Hi thks .. one small confussion

  if the benefeciary present invoice for less value tan the DC value isnt it loss for him as he has not reduce qty and qty price ( Loss = DC value – Invoice presented Value )

  Seconldy Invoice submitted higher value is accepted by bank in all cases or only if there is tolerance clause

  Reply

• 

  mroldman

  February 14, 2017 at 9:00 pm

  Please refer to ISBP 745 C7 and C14 to see if they can answer your question:
  C7) An invoice may indicate a deduction covering advance payment, discount, etc., that is not stated in the credit.
  C14) When no quantity of goods is stated in the credit, and partial shipments are prohibited, an invoice issued for an amount up to 5% less than the credit amount will be considered to cover the full quantity and not a partial shipment.

  Reply

3. 

   Sam

   February 13, 2017 at 12:34 pm

   How old man ur genius I appreciate the way u handle LC queries. I am answering Cdcs exam any tips .

   Can u explain y bank when authorized or requested to add confirmation will insist on the DC being available by payment acceptance or deferred payment

   Reply

• 

  mroldman

  February 14, 2017 at 9:12 pm

  Not sure I understand your question correctly. But I would explain as follows:
  1)Whether the L/C is available by negotiation, by payment, by acceptance or by deferred payment, the confirming bank always expects the L/C is available with it
  2) Where the confirming bank has negotiated the documents (under L/C available by negotiation), paid the documents (under L/C available by payment) or honoured the documents under L/C available by acceptance or deferred payment, it is certainly entitled to the reimbursement by the issuing bank, it can earn commisssion fee, acceptance or deferred payment undertaking…

  Reply

4. 

   Sam

   February 13, 2017 at 2:36 pm

   What is difference between authorized and request and
   In LC point 49 confirm instructions .. may add or confirm what it mean if with example explain it would be good

   Reply

• 

  mroldman

  February 14, 2017 at 9:12 pm

  Google “May add” + “Mr. Old Man” to find the answer

  Reply

5. 

   Sam

   February 16, 2017 at 3:18 pm

   Hi can you please explain me meaning of below

   Bill of lading indicated that it is subject to charter party is not acceptable.

   Reply

• 

  mroldman

  February 16, 2017 at 4:27 pm

  Hi,

  CPBL is the BL that contains an indication that it is subject to a charter party, e.g., “issued pursuant to charter party dated…”, “freight payable as per charter party” or entitled “Charter Party Bill of lading”… Where the L/C states “CPBL is not acceptable”, the bill of lading that contains such indication is not acceptable.
  CPBL is an agreement between the charterer and the ship owner. In case of any dispute with the charterer, the ship owner has the right to lay claim to the goods shipped on board the ship. For this reason, the issuing bank would refuse to accept to issue L/C that requires or allows the presentation of CPBL.

  Kind regards,
  Mr. Old Man

  Reply

6. 

   Le Phung Mai Thanh

   September 12, 2017 at 3:59 pm

   …

   Reply