Hello there!
Involved in bit of an internal ‘barney’ at the moment. A credit contains the following goods description:
‘NUTS, BOLTS AND WIDGETS AS PER:
PURCHASE ORDER ABC/123 FOR GBP100,000
PURCHASE ORDER ABC/124 FOR GBP150,000
PURCHASE ORDER ABC/125 FOR GBP50,000’
The credit is for GBP300,000 and partial shipments are allowed.
One camp contends the p/o amounts are “unit prices” per sub-Art 48h and therefore can be reduced on transfer. The other camp contends they are not “unit prices” as envisaged by sub-Art 48h and therefore must be included in any transfer without reduction.
Which camp would you support and why?
Grateful to anyone out there who is kindly prepared to let me have his/her thoughts.
Jeremy
[edited 2/2/2004 4:18:47 PM: Slip of the brain]
Sub-Art 48(h)- "unit prices"
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PGauntlett
- Posts: 153
- Joined: Fri Apr 05, 2019 5:25 pm
Sub-Art 48(h)- "unit prices"
Jeremy,
Definitely not a unit price otherwise they'd be very expensive widgets! Since there are no quantities stated the amounts are, in my opinion, total per p/o and, therefore, could be reduced (pro rata) to match the new value of the l/c.
If part shipments effected the invoice would need to show amount applicable to each p/o
Phil
[edited 2/3/2004 1:45:31 PM]
Definitely not a unit price otherwise they'd be very expensive widgets! Since there are no quantities stated the amounts are, in my opinion, total per p/o and, therefore, could be reduced (pro rata) to match the new value of the l/c.
If part shipments effected the invoice would need to show amount applicable to each p/o
Phil
[edited 2/3/2004 1:45:31 PM]
Sub-Art 48(h)- "unit prices"
Phil,
Many thanks for taking the time to reply.
What is not clear to me is the basis, under sub-Article 48(h), you would consider you were entitled to reduce the p/o amounts. Grateful if you could please clarify.
Thanks and regards, Jeremy
Many thanks for taking the time to reply.
What is not clear to me is the basis, under sub-Article 48(h), you would consider you were entitled to reduce the p/o amounts. Grateful if you could please clarify.
Thanks and regards, Jeremy
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PGauntlett
- Posts: 153
- Joined: Fri Apr 05, 2019 5:25 pm
Sub-Art 48(h)- "unit prices"
Jeremy,
To me, the p/o figures are simply a breakdown of the 'amount of the credit' and so logically can be reduced (pro rata) in the event of a transfer.
I've got a sneaking suspicion that I'm siding with the wrong camp!
Phil
To me, the p/o figures are simply a breakdown of the 'amount of the credit' and so logically can be reduced (pro rata) in the event of a transfer.
I've got a sneaking suspicion that I'm siding with the wrong camp!
Phil
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Sub-Art 48(h)- "unit prices"
I would approach this from a completely different viewpoint.
The difficulty arises from mixing description with value. SWIFT has a separate field to distinctly deal with the value of the LC. Any repetition elsewhere is unnecessary and in this case cumbersome. A separate field also distinctly deals with description alone. If the LC were not transferable, it would not cause problems, but in this case it does.
Try to approach the question from the viewpoint of the first bene who undoubtedly issued a proforma invoice upon which the PO was based and the second bene who would have supplied him with the information necessary to complete it.
Phil has made certain assumptions about the make up of the proformas/POs to come to the conclusion that they can be reduced pro rata. Let us say that the 1st PO related to nuts; 2nd PO to bolts and 3rd PO to widgets. It is not uncommon for loss leaders to apply in international trade as much as in your local supermarket. Thus the marjins on each of the three products may be different. Let us say they are 4, 8 & 10 %. If we envisage transferring the LC reduced pro rata by 5%, one of the items would have to be supplied by the second bene at a loss !
Since there may be more than one (second bene), offset may not be possible.
To use the original description incorporating the value per PO would likely be unacceptable to the first bene, as it reveals his selling prices to the second bene/s.
This brings me full circle to suggest an amendment deleting the value per PO as the most elegant solution to the problem.
All other suggested solutions welcome !
Laurence
The difficulty arises from mixing description with value. SWIFT has a separate field to distinctly deal with the value of the LC. Any repetition elsewhere is unnecessary and in this case cumbersome. A separate field also distinctly deals with description alone. If the LC were not transferable, it would not cause problems, but in this case it does.
Try to approach the question from the viewpoint of the first bene who undoubtedly issued a proforma invoice upon which the PO was based and the second bene who would have supplied him with the information necessary to complete it.
Phil has made certain assumptions about the make up of the proformas/POs to come to the conclusion that they can be reduced pro rata. Let us say that the 1st PO related to nuts; 2nd PO to bolts and 3rd PO to widgets. It is not uncommon for loss leaders to apply in international trade as much as in your local supermarket. Thus the marjins on each of the three products may be different. Let us say they are 4, 8 & 10 %. If we envisage transferring the LC reduced pro rata by 5%, one of the items would have to be supplied by the second bene at a loss !
Since there may be more than one (second bene), offset may not be possible.
To use the original description incorporating the value per PO would likely be unacceptable to the first bene, as it reveals his selling prices to the second bene/s.
This brings me full circle to suggest an amendment deleting the value per PO as the most elegant solution to the problem.
All other suggested solutions welcome !
Laurence
Sub-Art 48(h)- "unit prices"
Thanks, Phil, for your clarification; and thanks, Laurence, for your thoughts much of I agree with.
I am in the ‘purchase order amounts cannot be reduced in any transfer’ camp. The risk I see is that if the first benef does not substitute documents the issuing bank will be entitled, nay obliged, to refuse the second benef’s documents as there will be a deviation from the credit terms not authorised by sub-Art 48h. (The p/o amount(s) would have to be quoted in full on partial shipments, given sub-Art 37c.) However, other banks are apparently willing to reduce the p/o amounts in transfers. Whether these banks are aware of this risk I do not know, but I suspect that they are not.
[edited 2/5/2004 3:54:10 PM]
I am in the ‘purchase order amounts cannot be reduced in any transfer’ camp. The risk I see is that if the first benef does not substitute documents the issuing bank will be entitled, nay obliged, to refuse the second benef’s documents as there will be a deviation from the credit terms not authorised by sub-Art 48h. (The p/o amount(s) would have to be quoted in full on partial shipments, given sub-Art 37c.) However, other banks are apparently willing to reduce the p/o amounts in transfers. Whether these banks are aware of this risk I do not know, but I suspect that they are not.
[edited 2/5/2004 3:54:10 PM]
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SamJebamony
- Posts: 1
- Joined: Fri Apr 05, 2019 5:26 pm
Sub-Art 48(h)- "unit prices"
Can be reduced for transfer.
I don't think they are unit prices (pretty expensive NUTS & BOLTS !).
I would consider this as components of the LC amount.
I don't think they are unit prices (pretty expensive NUTS & BOLTS !).
I would consider this as components of the LC amount.
Sub-Art 48(h)- "unit prices"
I came across a case very similar to this recently while working with a bank in Hungary (which I thought was a one off).
The LC was designated as Irrevocable and transferable was received from a bank in Taiwan.
It had a very similar goods description to that outlined above.
The first beneficiary requested the transferring bank to transfer the Credit the following terms (using your example):
““NUTS, BOLTS AND WIDGETS AS PER:
PURCHASE ORDER ABC/123 FOR GBP90,000
PURCHASE ORDER ABC/124 FOR GBP135,000
PURCHASE ORDER ABC/125 FOR GBP45,000’
The credit was to be transferred in part to one second beneficiary for GBP270,000 and partial shipments were to be allowed.
I was asked by one of the LC staff if it was in order to transfer the Credit as above.
My first thougths at my busy desk were - fine- but then came the nagging doubt (for the same reasons outlined in this discussion). Because of this ambiguity and because the credit was for a very large amount of money, I advised her to seek clarification from Issuing Bank before the actual transfer.
The Issuing Bank responded with some puzzlement stating ‘please proceed as indicated as Credit was issued as transferable’
We proceeded, but I am glad we got the clarification - better safe than sorry.
Vin
The LC was designated as Irrevocable and transferable was received from a bank in Taiwan.
It had a very similar goods description to that outlined above.
The first beneficiary requested the transferring bank to transfer the Credit the following terms (using your example):
““NUTS, BOLTS AND WIDGETS AS PER:
PURCHASE ORDER ABC/123 FOR GBP90,000
PURCHASE ORDER ABC/124 FOR GBP135,000
PURCHASE ORDER ABC/125 FOR GBP45,000’
The credit was to be transferred in part to one second beneficiary for GBP270,000 and partial shipments were to be allowed.
I was asked by one of the LC staff if it was in order to transfer the Credit as above.
My first thougths at my busy desk were - fine- but then came the nagging doubt (for the same reasons outlined in this discussion). Because of this ambiguity and because the credit was for a very large amount of money, I advised her to seek clarification from Issuing Bank before the actual transfer.
The Issuing Bank responded with some puzzlement stating ‘please proceed as indicated as Credit was issued as transferable’
We proceeded, but I am glad we got the clarification - better safe than sorry.
Vin
Sub-Art 48(h)- "unit prices"
Thanks to Sam and Vin for your further contributions.
While I would agree, Sam, the p/o amounts undoubtedly make up the credit amount, I cannot see that they are other than part of the ‘description of the goods … in the Credit’ per sub-Article 37c. As the only change allowed to this description is ‘any unit price’, per sub-Art 48h, I remain convinced that to change the p/o amounts would be to act outside sub-Art 48h.
While I would agree, Sam, the p/o amounts undoubtedly make up the credit amount, I cannot see that they are other than part of the ‘description of the goods … in the Credit’ per sub-Article 37c. As the only change allowed to this description is ‘any unit price’, per sub-Art 48h, I remain convinced that to change the p/o amounts would be to act outside sub-Art 48h.
Sub-Art 48(h)- "unit prices"
I would go with the camp, which says p/o amounts can be reduced. I vote with Phil, that the p/o figures are simply a breakdown of the 'amount of the credit' As long as goods described under all the three p/o are included in the transfer I see no issue in reducing the amount of an individual p/o.
regards, Khalid
regards, Khalid