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Applicant Bankrupcy

Question:
We are beneficiaries under an unconfirmed Documentary credit. We have presented credit compliant documents to the negotiating bank, my housebank. My housebank is informing us that the issuing bank has not paid due to the applicant’s bankruptcy. I thought that an issuing bank always must pay provided that the documents are credit compliant. Am I right?

Answer:
Yes, you are right. ICC Uniform Practices for Documentary Credits, UCP 600, sub-article 7, states the basic rule that an issuing bank's undertaking is to honour a presentation that complies with the terms and conditions of the documentary credit when the documents are presented to the nominated bank or the issuing bank. Any other action would constitute a violation of UCP 600.The article reflects the fundamental principle that an issuing bank is liable for its documentary credits obligations, in all situations, even where an applicant has been incapacitated to pay.

Are there any delivery terms (INCO-terms) being less appropriate than others under transferable LCs?

Question:
Are there any delivery terms (INCO-terms) being less appropriate than others
under transferable LCs?

Answer:
Preferrably not CIF or CIP!
The transfer will imply a revelation of the 1st beneficiary’s revenue.
CIP or CIP are acceptable if the client is aware of the implication
and gives his permission.

Benefits of a confirmed documentary credit (LC)

Question:
Which benefit do I as exporter get when asking for a documentary credit (LC) to be confirmed by the advising/negotiating bank?

Answer:
A confirmed documentary credit means that the advising /negotiating bank, after confirming the LC, will pay or promise to pay against presented documents which after checking are found to be correct even if the issuing bank is not able to pay due to economic or political reasons.

As a banker I use to say to my customer. You are professional in producing and selling your products and services. Let us take care of the economic and political risks involved when using documentary credits as a way to receive payment. Every customer should have a risk policy for each buyer and country. Confirmed documentary credits may be seen as a part of such risk policy.

Bill of Lading and Gifts

Question:
I’m preparing documents under a Documentary Credit and upon delivering the goods to the buyer, the applicant, I would like to send him a present and some free samples as he is a very good friend of mine. I will not take it up in the invoice, the Bill of Lading however will show the gifts. Would that be OK according to the Documentary Credit rules?

Answer:
No, unfortunately not, it is against the Documentary Credit rules. You are not allowed to grant free samples and goods not covered by the Documentary Credit. (International Standard Banking Practice for the examination of Documentary credits, ISBP § 64.) Furthermore it would render the documents internally inconsistent, (UCP sub-article 14)

Can a 2nd beneficiary present his documents directly to an applicant?

Question:
Can a 2nd beneficiary present his documents directly to an applicant?

Answer:
No, presentation must be made to the transferreing bank.

Can an issuing bank also be a transferring bank?

Question:
Can an issuing bank also be a transferring bank?

Answer: Yes.

Can an LC be transferred at the request of the 2nd beneficiary to a subsequent (3rd) beneficiary?

Question:
Can an LC be transferred at the request of the 2nd beneficiary to a subsequent (3rd) beneficiary?
Answer:
According to ICC, UCP 600 sub-article 38 d. it cannot be effected, but as per
sub-article 1 the ICC rules can be modified. However, it is not recommended as it increases the operational risks. Most banks will disapprove of a request for transfer to a 3rd beneficiary.

Can an LC be transferred in part to more than one 2nd beneficiary

Question:
Can an LC be transferred in part to more than one 2nd beneficiary?
Answer:
Yes, provided that partial drawings or shipments are allowed.

Can the 1st beneficiary decide whether amendments, if any, may be advised to the 2nd beneficiary?

Question:
Can the 1st beneficiary decide whether amendments, if any, may be advised to the 2nd beneficiary?

Answer:
A request for answer must state if and under what conditions amendments may be advised to the 2nd beneficiary.

Compulsory evidence transhipment port

Question:
Must the insurance document evidence a transhipment port or place if applicable?

Answer:
The insurance doucment must indicate that the risk is covered at least between the place of taking in charge or shipment and the place of discharge or final destination as stated in the credit. A transhipment port/place kmust not necessarily be stated in the document.

Consequences for beneficiary due to discrepancies in documents

Question:
In case a beneficiary and a negotiating bank unanimously decide that the documents should be sent to the issuing bank for approval due to incurable discrepancies in the documents – which consequences could it possibly have for me as a beneficiary?

Answer:
Payment might be delayed, or worst case scenario: The applicant is not willing to pay. The issuing bank has no undertaking to pay unless documents under a Documentary Credit are credit compliant. As the applicant has the power to decide whether he will pay or not, you as the beneficiary should have confidence in the applicant , “K Y C”- (Know your client.)

Considerations regarding export of goods with trade term CIF

Question:
I am negotiating with a buyer regarding export of goods to be shipped to the buyer’s country, payment term Documentary Credit (LC), trade term CIF. Which considerations do I have make?

Answer:
C-terms :

As a seller you have an obligation to establish the contract of carriage which gives you the possibility to control the transport and the documentation. You are guaranteed a ship, airplane or other means conveyance, as agreed in the commercial contract, in the port or place of shipment. You have to pay for the main transport, under CIP and CIF you pay the insurance premium too. Usually the seller provides the shipping company with copy of the LC in order to minimize the risk of discrepancies.

Considerations regarding export of goods with trade term DDP

Question:
I am negotiating with a buyer regarding export of goods to be shipped to the buyer’s country, payment term Documentary Credit (LC), trade term DDP .Which considerations do I have make?

Answer:
D-terms:

D-terms are not compatible with LCs as they imply that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport. A transport document issued by a carrier at the port or place of shipment will therefore generally not be acceptable to a buyer, however, you could discuss it with him. It is crucial that you can obtain and present a transport document upon shipment of the goods, otherwise your fate is in the hands of your counterpart.

Considerations regarding export of goods with trade term EXW

Question:
I am negotiating with a buyer regarding export of goods to be shipped to the buyer’s country, payment term Documentary Credit (LC), trade term EXW .Which considerations do I have make?

Answer:
EXW:

EX-works deliveries under LCs require certificates to the effect that the buyer acknowledges receipt of the goods at the seller’s premises or another named place. Shouldn’t the buyer pick up the goods in due time you will not be able to present the certificate required in the LC. On the other hand you have the goods in your possession but you still might be caused a loss connected with re-selling or re-tailoring.

Considerations regarding export of goods with trade term FOB

Question:
I am negotiating with a buyer regarding export of goods to be shipped to the buyer’s country, payment term Documentary Credit (LC), trade term FOB. Which considerations do I have make?

Answer:
F-terms:

Under F-terms the buyer is establishing the contract of carriage for your account. In case the buyer has not fulfilled his obligation you might be left without means of conveyance. This in turn might cause late shipment (discrepancy in the LC). You might have to effect shipment from a port of shipment not permitted in the LC (discrepancy) in order to avoid penalty due to late shipment. However, where you have confidence in your counterpart – banks do not discourage from F-terms under LCs

Could you provide a brief explanation of a transfer of a Documentary Credit (LC)

Question:
Could you provide a brief explanation of a transfer of a Documentary Credit (LC)?

Answer:
A final buyer (the applicant) applies at his bank for an LC to be issued in favour
of a intermediary trader (the 1st beneficiary) - who in turn requests his bank to transfer the LC to the trader’s supplier (the 2nd beneficiary).
The goods are shipped directly to the Applicant by the 2nd Beneficiary and will never come into the physical possession of the intermediary trader, the 1st beneficiary.

Dates differ between Shipped on board and Bill of Lading

Question:
I have presented a pre-printed “Shipped on board” Bill of Lading to my bank under an LC. The Bill of Lading also contains a separate on board notation. The two dates differs.

Answer:
The separate date of shipment.

Documentary Credit (LC) for new employees

Question:
I´m a newly employed clerk at a small exporting company and I have just received a documentary credit (LC) in our favour from an advising bank. What shall I do?

Answer:
In order to get paid you should present documents required in the LC according to the terms and the conditions stated in the LC and in accordance with the UCP 600.

Step one:
Read the documentary credit and compare it with the contract signed by you and the buyer. Check if the goods can be transported as per LC terms. Check if the documents required can be presented within the time limits stated in the credit. If the terms and conditions stated in the LC cannot be fulfilled contact the applicant (the buyer) in order to have the LC amended. The amendment will come into force when all parties agree, the issuing and the advising bank, the applicant, the beneficiary and the confirming bank if any. Such amendment will be communicated to you (the beneficiary) the same way as the original LC.

Step two
When all the documents required in the LC are produced, send them together with a cover letter to the advising bank. You will find our cover letter at SEB (Trade Finance/Tools/Forms/Forms Sweden/Bankuppdrag remburs ). The documents will be checked by the bank. If they are found correct, depending on the instructions in the LC, payment or a promise to pay (in case of acceptance or deferred payment) will be made/given by either the advising bank (in case the LC is confirmed) or the issuing bank.

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Documentary Credit payable at foreign bank's counters

Question:
We are exporters being in the process of discussing a commercial contract with a buyer. We have agreed upon a Documentary Credit as payment form, but the buyer prefers having it payable at his own bank’s counters. Can our housebank still add it’s confirmation, and what would such a confirmation imply?

Answer:
Your housebank can assume the political and commercial risk of the issuing bank and the issuing bank’s country, but not the documentary risk, you can therefore not obtain a full confirmation from your housebank. Try to persuade the buyer to have it negotiable at your housebank’s counters!

Endorsement of Bill of Lading on the reverse side

Question:
A Bill of Lading issued to “order” has been presented to my bank together with other required documents under an LC. Unfortunately I’ve forgotten to endorse it on the reverse side. Can my bank help me?

Answer:
Yes. An endorsement indicating that it is made for or on behalf of the shipper is acceptable.

FAQ