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).
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 ! !
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.
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.
This is an interesting thread - I wonder if you could enlighten me further?
My experience is that the carrier will not accept a guarantee which places a limit on the value of the indemnity offered under the guarantee. After all, should they release to the incorrect party, the 'true' party may come after them for losses in excess of the underlying value of the goods (consequential losses etc).
Further, my understanding is that if a limit is placed by way of a private agreement between the bank and the party requesting the guarantee, such limitation would serve no purpose in limiting the carrier's claim against the bank (should they release incorrectly as a consequence of the inducement of the guarantee). This is to say, it is the bank who would be indemnifying the carrier.Could you comment on this?
Yes you're right. You've reminded me that I had lost sight of the fact that we were discussing an "indemnity" given by the bank and not a "guarantee"(actually, an indemnity given by the applicant to which the bank enjoins). As such, this indemnity would not specify an amount, but simply an indemnity for wrongful delivery, and therefore not limited by monetary value.
In our country we are requiring the following from our customers before processing the shipping guarantee.
1.Shipping Guarantee Application
2.Letter of Imdemnity
3.Copy of Invoice
4.Transport Documents
5.100 % Cash Margin if SIGHT LC
if Usance - Customer must also accomplish a Trust Receipt Form together with a Draft or Bill of Exchange (we used to have a draft provided by the bank) signed by the customer.
In usance LC Trust receipt form is very important as well as the draft , since these documents are more acceptable in the court of law compared to other documents presented in case of any disputes. (based onour experience) Since TR Form is a loan agreement between applicant and the issuing bank that documents will be paid through the proceeds once the goods are sold and draft is considered a financial document which is subject to documentary tax.
I talked about this to a few guys i know who issue shipping guarantees. According to them, while issuing a shipping guarantee, the banks normally ask for a copy of invoice, so from the copy presented they are able to check if the amount is overdrawn and if yes, they can accordingly cover themselves by taking additional margin or making the applicant sign an indemnity (as discussed earlier).
Thanks all, Usually, I
Thanks all,
Usually, I used before to take a security cheque against each Shipping Guarantee issued, Am I Right?
As far as I know, there are
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.
there is a risk
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, eensan@gmail.com
so...
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
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.
Based on what role ?
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, eensan@gmail.com
Thanks. but how do banks
Thanks.
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?
Shipping guarantee
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
Do not issue SGT in excess of LC Value
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.
"valued" indemnity
Hello
This is an interesting thread - I wonder if you could enlighten me further?
My experience is that the carrier will not accept a guarantee which places a limit on the value of the indemnity offered under the guarantee. After all, should they release to the incorrect party, the 'true' party may come after them for losses in excess of the underlying value of the goods (consequential losses etc).
Further, my understanding is that if a limit is placed by way of a private agreement between the bank and the party requesting the guarantee, such limitation would serve no purpose in limiting the carrier's claim against the bank (should they release incorrectly as a consequence of the inducement of the guarantee). This is to say, it is the bank who would be indemnifying the carrier.Could you comment on this?
How does it work in your environment?
cheers
phill doran
"...in armour bright, the merchant men..."
Indemnity
Hi Phill,
Yes you're right. You've reminded me that I had lost sight of the fact that we were discussing an "indemnity" given by the bank and not a "guarantee"(actually, an indemnity given by the applicant to which the bank enjoins). As such, this indemnity would not specify an amount, but simply an indemnity for wrongful delivery, and therefore not limited by monetary value.
In our country we are
In our country we are requiring the following from our customers before processing the shipping guarantee.
1.Shipping Guarantee Application
2.Letter of Imdemnity
3.Copy of Invoice
4.Transport Documents
5.100 % Cash Margin if SIGHT LC
if Usance - Customer must also accomplish a Trust Receipt Form together with a Draft or Bill of Exchange (we used to have a draft provided by the bank) signed by the customer.
In usance LC Trust receipt form is very important as well as the draft , since these documents are more acceptable in the court of law compared to other documents presented in case of any disputes. (based onour experience) Since TR Form is a loan agreement between applicant and the issuing bank that documents will be paid through the proceeds once the goods are sold and draft is considered a financial document which is subject to documentary tax.
I talked about this to a few
I talked about this to a few guys i know who issue shipping guarantees. According to them, while issuing a shipping guarantee, the banks normally ask for a copy of invoice, so from the copy presented they are able to check if the amount is overdrawn and if yes, they can accordingly cover themselves by taking additional margin or making the applicant sign an indemnity (as discussed earlier).