Home › Forums › Letters of Credit

Expiry of Letter of Credit

3 replies [Last post]
Tue, 08/31/2010 - 05:32
gbagadia
Offline
Joined: 08/31/2010
Posts:
Printer-friendly versionPDF version

I been opening many Letter of Credits for Imports, but this time I found my self is a typical situation. The LC was to expire on 21/Aug/2010, due to some quality concerns we had to cancle the order, the order was cancelled on mutual agreement with the supplier. I communicated the same to my bank which accepted the fact and noted the contents, but refused to cancel the Letter of Credit. Even after the Expiry of LC bank refuses to cancel the LC and reduce my LC liability. I gave them the communication received from the Supplier that no shipment was made under this LC but in vain.

 Bank says that they cannot cancel the LC because it is an Irrevocable LC and insists that benificiary's bank should send a SWIFT message confirming that LC is cancelled or the Beneficiary bank must send back the original LC by courier to us along with the letter stating that Beneficiary has cancelled the LC.

I need to open the New LC but bank refuses to do anything, my supplier is also trying to get his bank communicate with the advising bank to arrange the SWIFT message which will take a long time.

 My question is, after expiry of Letter of Credit (Irrevocable) how many days the applicant bank should hold the Letter of Credit?

‹ Credit for Details mean discrepancy acceptance in the LC ›
Top
Tue, 08/31/2010 - 06:48
#1
pan
Offline
Joined: 09/13/2007
Posts:
Expiry, where?

Hi Friend,

the expiry Place/Country and the availability of an  l/c are very important, if, p.e. expiry place is a Foreign Country and availability with any banks it is problematic to state that l/c remained unitilized. Moreover the Loss of documents, art 35 UCP600 will be at your risk, so after 15 / 20 days your bank can be approched by a bank asking for the reimbursement of certain amount. So, your bank is right, if it has no control of place of expiry and availability.

Other comments appreciated

Ciao

Top
Tue, 08/31/2010 - 08:08
#2
DC_ken
Offline
Joined: 07/21/2010
Posts:
Well this is common issue

Well this is common issue regarding unused credits. Before ceasing the credit the issuing bank must be insured that there wasn’t complying presentation effected to the confirming bank or there wasn’t presentation of documents to the advising bank and respectively currently traveling documents by courier to his head office. As “pan” said it depends of the place of expiry and the availability but in my opinion in case of lack of communication by swift or other means a month will be sufficient for your bank to be somehow sure no presentation was made. Anyway I think banks can not consider the credit be workable infinitely if there is no confirmation from the issuing/confirming/advising bank …

Top
Tue, 08/31/2010 - 13:04
#3
LC Sam
Offline
Joined: 08/09/2007
Posts:
Ken you are correct

You are correct in that bank would not consider the credit to be workable infinitely. There is usually an overall policy on how long to hold the letter of credit open after an expiry date.  The best place to find a specific number of days would be in the agreed terms of the letter of credit either listed on the letter of credit application or referenced there to a separate document.  For my bank, the referenced time is 45 days, but we can release it sooner based upon management approval.  Usually 15 days should be sufficient.

The reason that 15 days is sufficient is that a negotiating  bank will usually trace documents in that time, and therefore lost documents would probably be identified.

I hope this helps you out.

Best regards,

LC Sam 

Top