When a Late Instalment Doesn’t Kill the LC

In trade finance, timing is everything—especially when an LC requires shipments by instalments. But what happens if one instalment is shipped late and the bank decides to pay anyway? Does that wipe out the next instalments under Article 32 of UCP 600? Let’s look at a real scenario.

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QUESTION

Dear Mr. Old Man,

We issued an LC that stipulates shipment by instalments as follows:

• 1st shipment: 1,400 kg from 29 July 2025 to 03 August 2025
• 2nd shipment: 400 kg from 04 August 2025 to 07 August 2025
• 3rd shipment: 400 kg from 08 August 2025 to 12 August 2025

The 1st shipment was effected and documents were complying, so we paid.

The 2nd shipment was effected but the documents showed late shipment. We initially refused under Article 16 UCP 600, but later waived and paid.

Now the beneficiary has effected the 3rd shipment. Can we refuse the documents for the 3rd shipment under Article 32 UCP 600, since the 2nd shipment was originally discrepant?

Thank you.

TC

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ANSWER

Dear TC,

Thank you for your question.

Article 32 UCP 600 states:

“If a drawing or shipment by instalments within given period is stipulated in the credit and any instalment is not drawn or shipped within the period allowed for that instalment, the credit ceases to be available for that and any subsequent instalments.”

In your case, although the 2nd instalment was shipped late, your bank waived the discrepancy and honoured the presentation. By doing so, you effectively treated that instalment as validly shipped and drawn. As a result, the LC remains available for the 3rd instalment. If the documents under the 3rd instalment are otherwise complying, your bank must honour.

It’s worth stressing: if your bank had maintained its refusal of the 2nd instalment and not paid, then Article 32 would have applied and the 3rd instalment would also have ceased to be available.

I hope this clarifies the issue.

Best regards,

Mr. Old Man