Credit available by sight negotiation with ourselves contains the following condition:
100 PERCENT OF LC VALUE SHALL BE RELEASED IN ADVANCE AFTER CONFIRMATION OF RECEIPT OF LC.
The credit is otherwise ‘standard’ requiring presentation of shipping documents and contains an authorisation to claim reimbursement from a nominated reimbursing bank should documents comply with the credit terms.
Given that payment will have already been made (presumably by either the applicant or the issuing bank) outside of the credit prior to presentation of documents, the credit itself would seem to serve no purpose as documents will not trigger payment.
Has anyone come across anything similar to this in the past? The issuing bank is based in Pakistan and it may be that their import regulations require a credit to be issued but in that case would a credit of this type subvert any such regulations?
Andy
100% Advance Payment outside of the credit terms.
100% Advance Payment outside of the credit terms.
This does not look like alternative drawing language. "Advance" and "release" indicate that the payment would not be a payment under and of the LC itself, leaving the recipient open to a claim later for return of the advanced cash collateral securing payment of a later complying presentation, which might never be made.
Regards, Jim Barnes
Regards, Jim Barnes
100% Advance Payment outside of the credit terms.
I believe this is what was called "red clause" in the past. It means ,the amount of LC may be drawn in advance ,under reserve , until presentation of docs.
[edited 12/24/2013 10:47:46 AM]
[edited 12/24/2013 10:47:46 AM]
100% Advance Payment outside of the credit terms.
I guess there is no relation to "red clause" credits - they were intended to provide for advance not in 100% and had terms related to refund of advance if the documents were not presented or presented discrepant with discrepancies not waived.
The query does not mention any such clause hence I believe there is none.
To me it seems that you either:
Face a case of fraud
or
Deal with a country where documentary payment (L/C or collection) is a legal requirement and the parties wish to by-pass this requirement in this way.
I have never seen a clause like this before in a documentary credit, but I saw collections to one African country where there are legal restrictions for direct settlements. These collections provided for release of the documents against payment of charges only while stating that the full amount of the invoice was paid outside these collections.
Radek
The query does not mention any such clause hence I believe there is none.
To me it seems that you either:
Face a case of fraud
or
Deal with a country where documentary payment (L/C or collection) is a legal requirement and the parties wish to by-pass this requirement in this way.
I have never seen a clause like this before in a documentary credit, but I saw collections to one African country where there are legal restrictions for direct settlements. These collections provided for release of the documents against payment of charges only while stating that the full amount of the invoice was paid outside these collections.
Radek
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HOANGTHIANHTHU_invalid
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100% Advance Payment outside of the credit terms.
Dear Radek and all,
It appears to be a red clause credit but the difference is that the advance payment amount is 100% of the LC amount instead of a lower percentage as usual.
I have never come across any credit of this type. If our bank were a nominated negotiating bank, we could agree to act on the nomination, i.e., agree to make advance payment, on the following conditions:
(i) The issuing bank must be one of our first class correspondent banks.
(ii) The reimbursing bank, which must be a first class bank, is requested to issue its irrevocable reimbursement undertaking
(iii) The advance payment is on a with recourse basis if no reimbursement is received for whatever reasons. Of course, our credit department will assess the beneficiary’s financial ability to make sure that the beneficiary is capable to repay the advance payment.
Kind regards,
N.H.Duc
[edited 1/12/2014 12:48:00 AM]
It appears to be a red clause credit but the difference is that the advance payment amount is 100% of the LC amount instead of a lower percentage as usual.
I have never come across any credit of this type. If our bank were a nominated negotiating bank, we could agree to act on the nomination, i.e., agree to make advance payment, on the following conditions:
(i) The issuing bank must be one of our first class correspondent banks.
(ii) The reimbursing bank, which must be a first class bank, is requested to issue its irrevocable reimbursement undertaking
(iii) The advance payment is on a with recourse basis if no reimbursement is received for whatever reasons. Of course, our credit department will assess the beneficiary’s financial ability to make sure that the beneficiary is capable to repay the advance payment.
Kind regards,
N.H.Duc
[edited 1/12/2014 12:48:00 AM]