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What if the client cancel the order under LC

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Mon, 02/08/2016 - 23:57
vishal_vk_praja...
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Respected All,

Good Morning.
 
There is one query which has been grooming inside the mind since many days.
 
Suppose, If we have an LC from a client and later he cancels the order without any shipment after some time of issuing the irrevocable LC due to some bad circumstances.  
 
So in this case, Are we able to get the payment from the issuing bank without any shipment??
 
We guide me in this case.

Receiving LC from Sudan ›
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Tue, 02/09/2016 - 04:08
#1
Pallavi Abdagiri
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Joined: 08/22/2013
Hi Vishal, Not sure if we

Hi Vishal,

Not sure if we here means issuing bank or confirming bank.

Firstly, appplicant cannot cancel the LC without consent of issuing bank, beneficiary and confirming bank, if any since this is irrevocable LC.

If shipment had already taken place and documents are clean at issuing bank's counter, issuing bank has to make payment.

Regards,

Pallavi  

 

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Thu, 02/11/2016 - 02:36
#2
vishal_vk_praja...
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Joined: 02/08/2016
Query...

Dear Pallavi,

Thanks for the below information. But the feedback which I wanted to know is not which you sent me. So it might be possible that you understood my question wrongly. So below I am going to depict again my query in a well-mannered narration so that you can forward me a correct and right information.

 For instance, we have an irrevocable LC ( with or without confirmation) and you can consider this LC is directly from issuing bank. There is no any advising bank or intermediate bank in it.

And in this case, after few days of receiving this LC, we come to know from the client that they are going to cancel the order or stop the order which they have placed to us due to some bad circumstances on their part and no shipment has been done in this case. This order is under irrevocable LC.

So what are the chances to get the payment from issuing bank and is there any assurance to get the payment under the same LC from issuing bank if the client cancels the order.

Just note that in this case no shipment is done and not any documents at issuing counter.

So this is an overall case. Now please let know your feedback about assurance of payment.

Waiting for your answer dear.

Regards,

Vishal Prajapati

 

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Tue, 02/16/2016 - 11:11
#3
phill doran
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Joined: 02/10/2009
to ship or not to ship, that is the question...

Hello Vishal

Just to add to what has been (correctly) said by Pallavi:

The credit is independent of the order and it is independent of the applicant. If the order is cancelled, it is cancelled by the BUYER – and the buyer is NOT a party to the credit, so what happens at an order level has no influence on the credit. Once the credit is established it is an irrevocable commitment by the issuing bank to pay you, it is not a commitment by the applicant to pay – the applicant’s opinion has no bearing (provided the credit is not drawn up in such a manner that would allow the applicant to frustrate its execution by inaction).

If you present the correct documents within the time-scale allowed, then as BENEFICIARY (not as SELLER) you will have the right to be paid in terms of the credit. Whether you will actually be paid or not is another challenge, but you will certainly have the right to be paid i.e. we cannot say that the issuing bank will honour its commitment until it does so.

The point that has been made by Pranoto is a good one: in an average credit under general conditions, you will be required to submit a transport document. If you wish not to do this i.e. not to ship the goods, then the credit will expire at some point. So you cannot have it both ways. You either ship and present the papers hoping that they will not be discrepant and that the issuing bank will honour – or you decide that there is an underlying risk and do not ship, in which case you will not be paid under the credit. (You may still have a right to be paid in terms of the sales agreement, but this will not influence the credit.)

Others will have more on this I am sure.

I wish you well

Cheers
phill
“...in the kingdom of the blind; what you see is what you get...”

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Tue, 02/16/2016 - 06:17
#4
pranoto
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Joined: 01/28/2016
cancel order

Dear Vishal,

Issuing Bank will make payment after they receive documents. Although without any shipment if you could submit all documents required and it's clean the Issuing Bank should make payment to the beneficiary bank. But it's almost impossible cause among of documents required are usually made after shipment (for example Bill of Lading).

I hope it helps you

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