Tell me your experience in this point.
1) LC issued, Goods reached Port before Original Docs.
My question is that , does your Banks takes additional securities in case you issued a shipping Guarantee? if so, then why?
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Usually, I used before to take a security cheque against each Shipping Guarantee issued, Am I Right?
As far as I know, there are no additional securities required, as it would have already been taken while issuing the LC. Further, the banks also make sure that the applicant signs an indeminity mentioning they will accept the documents (once they arrive).
This is my view, plz correct if I am wrong.
Ask for an indemnity that they will accept the documents as presented.The risk is if you receive a discrepant documents for example invoice amount is exceeding the L/C amount ! !
Regards, [email protected]
so based on your comment above,... who would be required to pay the extra amount on the invoice? Do banks make sure that applicant agrees to pay overdrawn amount in such instances? or do banks have to pay it itself, if such a situation happens? Kindly confirm. thks.
No, the banks are not liable to pay the extra amount, banks liability is only the credit amount. They can pay the extra amount if applicant pays it.
Dear cv-600,Banks are not liable to pay the extra amount?
What if the Bank refused to pay then the Beneficiary asks to have documents back?
The best way to issue shipping guarantee is to obtain an authorization from the Bank of Beneficiary
Regards, [email protected]
but how do banks protect themselves? would banks put some kind of disclaimer clause at the time of guarantee, saying to applicant "if docs presented by your supplier are presented with an overdrawn amount, we shall be finding you to cover the extra amount? what if applicant refuse to pay it, cos his credit facility let's say only covered for an amount of 10,000 and now bene is asking for 11,000?
I'm in agreement with the opinion of cdcspinoy, below, especially with the opinion that the guarantee should not exceed LC value.
However, to address your specific question, my view is that the indemnity given by the applicant would not only be required to state that the applicant will accept any discrepancy, but also that the applicant waives his right to reject the documents. The latter distinction is important, because an acceptance of a discrepancy in which the invoice overdraws the value of the LC, would imply that whilst the discrepancy is accepted, the disbursement under the LC is limited to the LC value, whereas an acceptance of the documents, would imply that the invoice will be accepted for payment for whatever value it evidences. A refusal by the applicant to fund the difference (if not already secured by the issuing bank through cash margin) may be considered to be a breach under the terms of the indemnity. But, the bottom line is that this concerns the issuing bank and the applicant only, and the issuing bank has to be careful that it covers itself for such an eventuality, whilst ensuring that it remains mindful of its obligations to the beneficiary, under the LC, to either pay, or hold the documents at the beneficiary's disposal
First of all, Banks should not issue Shipping Guarantee in excess of LC amount. Second , Shipping Guarantee Application form must state that all discrepancies must be accepted by the applicant and applicant is undertaking to pay whatever amount is due in lieu of shipping guarantee including charges. In the event that banks allowed issuing the shipping guarantee in excess of the LC value, banks must collect the excess amount in form of a cash margin. That is the reason why, when issuing SGT Applicant must submit copy of Invoice and Bill of Lading or AWB to ensure that amount is not overdrawn.