LC 101
Where do I start? I am in the processes of closing a 2000MT/annum raw cashew nuts order from india. I am in UK but the cashew nuts are coming from Nigeria.. (Yes there are still credible and honest traders in Nigeria) Well anyway, buyer needs 30 days credit which means seller (me) wont be paid until 30days from arrival of consignment in MUMBAI. We are proposing to buyer to open one LC to accomodate 4 shipments of 500 MT per quater. So we supply within 30 days of LC and we wait a further 30 days for payment on arrival of goods. Is it this straight forward? Are there some things we must ask of buyer to protect us? What kind of contract should we expect. Any suggestions will be highly appreciated. Thanks, Barney
Hi Barney,
We are experts in letters of credit and Africa, and we have a clear understanding of the RCN industry in West Africa.
We may be able to help you with your trade finance needs.
Please let us know how best to contact you.
Regards,
Finance
Hi Barney,
I am glad to hear that there are still credible traders in Nigeria.
The best way to request the letter of credit is as follows:
1. Offer to supply the goods within 30 days of letter of credit issuance. (A specific date is always better, that way they can list this date as the latest shipment date on the letter of credit. You would then be required to ship by this date.)
2.Offer to have the goods payable based upon a specific time period that can be calculated by the issuing bank. (For example you can state that the payment is to be 30 days afer shipment.) Using the arrival date is tricky, as there is normally not a way for the issuing bank to know the true arrival date. Banks prefer to us the terms 30 days sight. The sight date is the date that the documents are received in order by the issuing bank. If the documents are not in order, it is the date that the discrepant documents are noted as accepted by the issuing bank.
By having the terms in the letter of credit, you are better protected as the issuing bank is required to pay you based upon the time period if the documents are in order or if discrepant documents are subsequently accepted by the issuing bank.
Good luck with your shipment.
Best regards,
LC Sam
Thanks LC Sam
Kindly expain to me what consitutes "discrepant documents" How do I guard against discrepant documents? I read somewhere the issuing bank could refuse to honour the LC due to discrepant documents. This is worrying. Thanks.
Trade and Industrial Cooperation between India and Africa.
http://www.rsagroup.net/indogeria
We are experts in letters of credit and Africa, and we have a clear understanding of the RCN industry in India..
regards,
phe9oxis,
http://www.guidebuddha.com
The best way to guard against discrepant documents is to become familiar with the regulations of the letter of credit (such as the UCP 600) and to ensure that the documents match the requirements of the letter of credit. Since that normally takes around 3 years (the prescribed time of experience for a candidate to take the CDCS exam) you may want to work closely with your bank or a local bank with experience in letters of credit and a competent freight forwarder. There are also companies that specialize in letter of credit documentation.
Also, and I would recommend this for all individuals shipping under the letter of credit, review the letter of credit BEFORE you make any shipments. You need to make sure that you can present the documents required under the letter of credit with the appropriate information (i.e. shipment before the latest shipment date or presentation within the time period allowed in the letter of credit). If you do not think you can present these documents then you need to ask and receive an amendment to the letter of credit before you ship the goods. If you have questions regarding anything in the letter of credit, contact the bank that sent the letter of credit to you (the advising bank). They can clarify information or as the issuing bank to clarify information. If you still do not understand the clarification, ask and receive an amendment so that you understand the reauirements.
Sometimes companies will forgo the amendment to save a small amount of money and perhaps they trust the buyer. What they do not realize is that they risk the entire amount of their shipment, as the bank can refuse to pay a letter of credit if the documents do not comply with the terms and conditions of the letter of credit, EVEN IF THE BUYER ACCEPTS THE DISCREPANCIES.
I hope this helps you out.
LC Sam
Dear Sam,
In UCP 600 and as per ISBP if the bank points out a discrepancy they have certain obligation towards beneficiary like sending them the list of discrepancies and returning the docs so that can be corrected (obviously time lost) or ask the beneficiary for an waiver from applicant....
but what you mean is that even if the waiver is in place the bank i.e the negotiating/issuing bank can still refuse to honour/negotiate....dont understand this...why the bank will refuse if a waiver in place.....
appreciate your comments...
BP
We are experts in letters of credit and Africa, and we have a clear understanding of the RCN industry in West Africa.
We may be able to help you with your trade finance needs.
regards,
phe9oxis,
http://www.guidebuddha.com
1.Offer to have the goods payable based upon a specific time period that
can be calculated by the issuing bank. (For example you can state that
the payment is to be 30 days afer shipment.) Using the arrival date is
tricky, as there is normally not a way for the issuing bank to know the
true arrival date. Banks prefer to us the terms 30 days sight. The
sight date is the date that the documents are received in order by the
issuing bank. If the documents are not in order, it is the date that
the discrepant documents are noted as accepted by the issuing bank.
regards,
phe9oxis,
http://www.guidebuddha.com
Sometimes companies will forgo the amendment to save a small amount of
money and perhaps they trust the buyer. What they do not realize is that
they risk the entire amount of their shipment, as the bank can refuse
to pay a letter of credit if the documents do not comply with the terms
and conditions of the letter of credit, EVEN IF THE BUYER ACCEPTS THE
DISCREPANCIES.
regards,
phe9oxis,
http://www.guidebuddha.com
Hi!
This is because of the nature of LC.
LC is irrevocable undertaking of the ISSUING bank and noone else.
Relations between applicant and issuing bank are secondary and are liying outside of LC, i.e. are quite separate.
And, even, if issuing bank has confirmation from the applicant that applicant waives discrepancies and bank may pay against discrepant docs, the issuing bank is able to not pay.
Why?
For example, if he have doubts that he will be duly reimbursed by the applicant. (for instance, applicant is on the way to bancruptcy etc).
If the bank will pay and will not get the funds back (+ commisions) whether it will pay?
Good luck
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