Importance of Complying with Line of Credit Terms

Importance of Complying with Line of Credit Terms :

As documentary credit operations cover only documents and not goods it is of utmost importance that the beneficiary tenders documents in conformity with the terms of credit. Discrepancies howsoever negligible result in nullification of the opening bank's engagement to pay. Discrepant documents can be paid only if the buyer agrees to accept them, but the seller runs a great risk in time of recession when slight default in the documents can result in their total rejection by the buyer. Therefore, importance of complying with the terms of credit cannot be over-emphasised.

However, in the event of documents not complying with the terms of credit the following alternatives are available to the negotiating bank.

Return the documents to the beneficiary who can then arrange to have them sent for collection.

Payment under reserve against beneficiary's indemnity provided he is of undoubted and of highest financial standing and if he is the customer of negotiating bank.

If he is not the customer, payment under reserve against beneficiary's banker's indemnity.

Cable for opening bank's authority to' pay. In this case complete disclosure of all discrepancies must be made.

Tender of Documents

While presenting the documents under the L / C to the negotiating bank the following aspects are to be specifically looked into apart from the general observance of completeness, conformity with terms of credit, consistency of documents with one another, compliance with exchange control/trade control requirements and the Uniform Customs & Practices for Documentary Credits.

The documents should be presented within the validity date for presentation under the L/C. If, however, the expiry date of the credit falls on a day when banks are closed on account of holiday, the expiry date is extended to the first following business day on which the bank is open. If documents are discrepant and the credit expires before all the discrepancies are rectified, the exporter cannot claim that the documents were submitted within the expiry period. Under restricted L / Cs, it should particularly be noted that sufficient time is available to the exporter's bankers to present the documents to the bank to whom negotiation is restricted since presentation at the latter's counters within validity will only amount to valid presentation.

It should be checked that all documents as called for in the LlC are being presented for negotiation. These documents should be subjected to a detailed check vis-a-vis L / C terms before presentation.

The documents should be presented in required numbers as per L / C terms.

Apart from the documents required to be presented as per L/C terms, there are certain additional documents like GRIPP forms, customs certified copy of the invoice, etc. which are to be submitted to the bank as per exchange control provisions. It should be ensured that these requirements are complied with.

The original Letter of Credit along with all amendments thereto should also be presented to the negotiating bank.

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