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Confirming Bank

The law of the sea.

Confirming Bank

Postby Aden » Thu Nov 24, 2016 1:12 pm

Does a prime world bank be demanded to have a confirming bank in issuing a transferable letter of credit? A buyer/exporter insists from our intermediary company that the issuing bank should issue a CONFIRMED letter of credit. But our issuing bank of our buyer is a prime world bank ICBC.

ANSWER: Dear Dante

The short answer is NO. A top bank is not required to issue a confirmed credit as it status  that it will honour the value  of  the credit is confirmed - but naturally  the deal dictates as much. If you force a top bank to also issue confirmed credit , its going  to be expensive. At  the end of it all, a supplier calls the shots. And if the intermediary - the advising bank of such,  is going to ensure collection , then the advising bank will want a confirmed credit .

Your offer to the exporter should have been strictly applied -

You offer to buy using transferable credit - the supplier may accept it or not accept it .If the supplier insists on a confirmed credit  from a leading world bank , then the supplier should accept to confirm the credit  at his EXPENSE , at his BANK.

You obtain the transferable credit from the buyers bank and advise it as not transferable to the supplier , who may then at his expense confirm the credit at his bank.If his bank will not confirm the credit  , then  such gives not confidence of the issuing bank .

When I ask for a DLC from a buyer i often apply as per following example -

From a end buyer i might ask -

Top 300 world ranked bank issued pre-advised UCP600 endorsed  Irrevocable non cumulative revolving  transferable  Documentary Letter of Credit as issued from the Bank of the end Buyer to the Sellers bank, supporting total contract value in where  revolving value status of  6  per each monthly  shipment lot  is applied as the revolving payment value,  in advance at all times.  As one credit is collected upon, value returns to 6, until such value reduce  on the 12th month of delivery.  

Collection applied for at sight of each clean presentation of delivery  documents .All transfer fee’s and pre advising transaction fee  for the account of the buyer. Seller will  accept a  pre-advised Non transferable credit where such is confirmed at sellers bank at buyers expense. Please add  as a further expense  USD$2.75 per MT  to said price offer  if this type  credit is being used.

Once PPI(Evidence of our interest held in goods offered  ) is advised to the buyers bank declaring and identifying our contracted stock pile, mine(s) and or selected suppliers for this order, the  pre advised status of credit is removed to convert such into a full active credit . Buyer is to be informed if their bank will issue a UCP 600 endorsed pre advised credit before accepting this offer.

I ask this because the supplier already accepted to sell goods as ; To the supplier i might offer to buy  as buyer -

Buyers advising bank is a top 80 world bank:  UCP600 ruling  Irrevocable non cumulative revolving non transferable  documentary letter of credit as advised  from the Bank of the Buyer to the Sellers bank, supporting total  contract value revolving value established as  two opening shipment values in advance at all times. Supporting full DLC  payment per total contract shipments. Collection applied for at sight of clean presentation of delivery  documents for each delivery . As one delivery is collected upon DLC value return to 2 shipment values-

A syou cna see Dante- Supplier may choose to confirm the credit from his bank at his expense. If he does this then he may ask for a higher price- to which part of your commission then becomes a reduced amount.

You see- I obtain the strongest DLC from the end buyer even though seek to offer  the simplest DLC to the supplier.

If the supplier does not accept the offer -you have no deal  -its that simple.

A top bank  should not be asked to issue a confirmed credit , so to make the choice limited if the Buyer does not WISH to open a transferable credit then I will force the price to be higher and accept a non transferable credit in where such MUST be issued as confirmed.

The supply is secured first - this means you MUST know first what credit is acceptable to the supplier- once you know this - then you can seek the appropriate credit form the end buyer - if the end buyer will not issue such a credit  - you have no deal.Its that simple.

If you have secured the credit without the supplier intent being apparent first , then you've made the classical mistake of not being correctly informed.

Are you going to lay down a bet that a Ferrari car  will lose a race with a horse- no you will not, but in reality it's up to you if you want to take such a bet.

You make the arrangement  of with supplier - you advise him that you will ADVISE a credit for a top i.e 100 bank - at the end its up to him to accept it . The  end buyer will pay a lot more for goods that really didn't need to apply because of the confirmation applied on the credit.

hope it helps

Regards

Davide Papa

www.ftnexporting.com

www.smice.net

---------- FOLLOW-UP ----------

Dear DAVIDE,

I really thank you for your very explicit advice. I should have asked you earlier because as termed it above, i already committed a classic mistake.

What will i do if the seller violates our contract? After an LC under the CIF terms was already issued to the bank of the seller, i received an email from the seller that their bank cannot finance the said LC. And they requested me to finance the transportation instead because they too cannot and not willing to finance it. Is this not a non-compliance of the contract because CIF should mean that the seller is obligated to pay transportation expenses from the loading port to the port of destination? I really need your timely advise because the situation is real time. I am presently dealing with the seller and the problem i presented.

Regards,

Dante

ANSWER: Dear Dante You are asking legal question- I really can't advise you except for some basic insight. If it's a big supplier they have assets then its a breach of contract CIF incoterms is very clear who pays for what.If you are dealing with another confused intermediary who thinks he is a seller - then you will be wasting your time to sue  and he has probably no  assets. He is looking for pre shipment finance- then he should have not accepted the deal or credit . A credit is worth nothing until the goods are delivered. Then it become valuable. There is not security value in a DLC - the supplier cannot borrow against it  and a Bank has no business to do with matters of contract - they only deal in matters of DLC. If his bank will not finance his operation with loan  it means his operation is poor or worthless or he has a bad credit rating.

You need to write to him and inform him of the breach and issue notice - You need to inform his chamber of commerce(consulate) You need to inform government export department and if he has assets you need to contact a lawyer IN HIS COUNTRY to take action on breach of contract(very hard OTHERWISE) AT THE END NO ASSETS - THEN YOU CAN'T GET ANYTHING. A BREACH OF CONTRACT IS SERIOUS ISSUE . ENFORCING SUCH IS ANOTHER STORY.

He has to pay for inspection as well which is very expensive, so it s not just transport cost , but other matters as well. Don't try anything it's too late - he has no money to finance anything.He probably does not have an export permit or is another confused intermediary who thought he knew what he was doing.Any large export supplier will be able to finance their own costs, and if they can't most such can arrange finance - Smaller exporters often  can't .

I can't advise any further because i am not a lawyer .I am an expert as such i can only give expert opinion of the matter of the deal itself .

if you do not have any assets , then the end buyer cannot sue you as well. The best idea is simply to call "frustration of contract" and claim that you can't perform because the situation has changed after  the DLC was advised. If a supplier cannot perform -find another supplier  quickly or  the deal is over.  

Hope it helps David Giovanni Papa

www.ftnexporting.com

---------- FOLLOW-UP ----------

Dear Davide,

Thanks for your informative answer. As i have said that i am in a real time situation as basis for my questions, we have now reached a point where the buyer asks my trading company to request my bank to cancel the transferred LC issued by them through their issuing bank; hence this follow up question if you please:

What is the effect(like cost) if i(trading company) will request my transferring bank to cancel the transferable LC even before its date of validity expiration? Should i just let it reach the of its date of validity?
Aden
 
Posts: 42
Joined: Mon Jan 06, 2014 3:15 pm

Confirming Bank

Postby Nef » Sat Nov 26, 2016 5:28 am

Does a prime world bank be demanded to have a confirming bank in issuing a transferable letter of credit? A buyer/exporter insists from our intermediary company that the issuing bank should issue a CONFIRMED letter of credit. But our issuing bank of our buyer is a prime world bank ICBC.

ANSWER: Dear Dante

The short answer is NO. A top bank is not required to issue a confirmed credit as it status  that it will honour the value  of  the credit is confirmed - but naturally  the deal dictates as much. If you force a top bank to also issue confirmed credit , its going  to be expensive. At  the end of it all, a supplier calls the shots. And if the intermediary - the advising bank of such,  is going to ensure collection , then the advising bank will want a confirmed credit .

Your offer to the exporter should have been strictly applied -

You offer to buy using transferable credit - the supplier may accept it or not accept it .If the supplier insists on a confirmed credit  from a leading world bank , then the supplier should accept to confirm the credit  at his EXPENSE , at his BANK.

You obtain the transferable credit from the buyers bank and advise it as not transferable to the supplier , who may then at his expense confirm the credit at his bank.If his bank will not confirm the credit  , then  such gives not confidence of the issuing bank .

When I ask for a DLC from a buyer i often apply as per following example -

From a end buyer i might ask -

Top 300 world ranked bank issued pre-advised UCP600 endorsed  Irrevocable non cumulative revolving  transferable  Documentary Letter of Credit as issued from the Bank of the end Buyer to the Sellers bank, supporting total contract value in where  revolving value status of  6  per each monthly  shipment lot  is applied as the revolving payment value,  in advance at all times.  As one credit is collected upon, value returns to 6, until such value reduce  on the 12th month of delivery.  

Collection applied for at sight of each clean presentation of delivery  documents .All transfer fee’s and pre advising transaction fee  for the account of the buyer. Seller will  accept a  pre-advised Non transferable credit where such is confirmed at sellers bank at buyers expense. Please add  as a further expense  USD$2.75 per MT  to said price offer  if this type  credit is being used.

Once PPI(Evidence of our interest held in goods offered  ) is advised to the buyers bank declaring and identifying our contracted stock pile, mine(s) and or selected suppliers for this order, the  pre advised status of credit is removed to convert such into a full active credit . Buyer is to be informed if their bank will issue a UCP 600 endorsed pre advised credit before accepting this offer.

I ask this because the supplier already accepted to sell goods as ; To the supplier i might offer to buy  as buyer -

Buyers advising bank is a top 80 world bank:  UCP600 ruling  Irrevocable non cumulative revolving non transferable  documentary letter of credit as advised  from the Bank of the Buyer to the Sellers bank, supporting total  contract value revolving value established as  two opening shipment values in advance at all times. Supporting full DLC  payment per total contract shipments. Collection applied for at sight of clean presentation of delivery  documents for each delivery . As one delivery is collected upon DLC value return to 2 shipment values-

A syou cna see Dante- Supplier may choose to confirm the credit from his bank at his expense. If he does this then he may ask for a higher price- to which part of your commission then becomes a reduced amount.

You see- I obtain the strongest DLC from the end buyer even though seek to offer  the simplest DLC to the supplier.

If the supplier does not accept the offer -you have no deal  -its that simple.

A top bank  should not be asked to issue a confirmed credit , so to make the choice limited if the Buyer does not WISH to open a transferable credit then I will force the price to be higher and accept a non transferable credit in where such MUST be issued as confirmed.

The supply is secured first - this means you MUST know first what credit is acceptable to the supplier- once you know this - then you can seek the appropriate credit form the end buyer - if the end buyer will not issue such a credit  - you have no deal.Its that simple.

If you have secured the credit without the supplier intent being apparent first , then you've made the classical mistake of not being correctly informed.

Are you going to lay down a bet that a Ferrari car  will lose a race with a horse- no you will not, but in reality it's up to you if you want to take such a bet.

You make the arrangement  of with supplier - you advise him that you will ADVISE a credit for a top i.e 100 bank - at the end its up to him to accept it . The  end buyer will pay a lot more for goods that really didn't need to apply because of the confirmation applied on the credit.

hope it helps

Regards

Davide Papa

www.ftnexporting.com

www.smice.net

---------- FOLLOW-UP ----------

Dear DAVIDE,

I really thank you for your very explicit advice. I should have asked you earlier because as termed it above, i already committed a classic mistake.

What will i do if the seller violates our contract? After an LC under the CIF terms was already issued to the bank of the seller, i received an email from the seller that their bank cannot finance the said LC. And they requested me to finance the transportation instead because they too cannot and not willing to finance it. Is this not a non-compliance of the contract because CIF should mean that the seller is obligated to pay transportation expenses from the loading port to the port of destination? I really need your timely advise because the situation is real time. I am presently dealing with the seller and the problem i presented.

Regards,

Dante

ANSWER: Dear Dante You are asking legal question- I really can't advise you except for some basic insight. If it's a big supplier they have assets then its a breach of contract CIF incoterms is very clear who pays for what.If you are dealing with another confused intermediary who thinks he is a seller - then you will be wasting your time to sue  and he has probably no  assets. He is looking for pre shipment finance- then he should have not accepted the deal or credit . A credit is worth nothing until the goods are delivered. Then it become valuable. There is not security value in a DLC - the supplier cannot borrow against it  and a Bank has no business to do with matters of contract - they only deal in matters of DLC. If his bank will not finance his operation with loan  it means his operation is poor or worthless or he has a bad credit rating.

You need to write to him and inform him of the breach and issue notice - You need to inform his chamber of commerce(consulate) You need to inform government export department and if he has assets you need to contact a lawyer IN HIS COUNTRY to take action on breach of contract(very hard OTHERWISE) AT THE END NO ASSETS - THEN YOU CAN'T GET ANYTHING. A BREACH OF CONTRACT IS SERIOUS ISSUE . ENFORCING SUCH IS ANOTHER STORY.

He has to pay for inspection as well which is very expensive, so it s not just transport cost , but other matters as well. Don't try anything it's too late - he has no money to finance anything.He probably does not have an export permit or is another confused intermediary who thought he knew what he was doing.Any large export supplier will be able to finance their own costs, and if they can't most such can arrange finance - Smaller exporters often  can't .

I can't advise any further because i am not a lawyer .I am an expert as such i can only give expert opinion of the matter of the deal itself .

if you do not have any assets , then the end buyer cannot sue you as well. The best idea is simply to call "frustration of contract" and claim that you can't perform because the situation has changed after  the DLC was advised. If a supplier cannot perform -find another supplier  quickly or  the deal is over.  

Hope it helps David Giovanni Papa

www.ftnexporting.com

---------- FOLLOW-UP ----------

Dear Davide,

Thanks for your informative answer. As i have said that i am in a real time situation as basis for my questions, we have now reached a point where the buyer asks my trading company to request my bank to cancel the transferred LC issued by them through their issuing bank; hence this follow up question if you please:

What is the effect(like cost) if i(trading company) will request my transferring bank to cancel the transferable LC even before its date of validity expiration? Should i just let it reach the of its date of validity?
Nef
 
Posts: 31
Joined: Mon Feb 03, 2014 2:23 am

Confirming Bank

Postby Maynor » Mon Nov 28, 2016 1:50 am

Dear Dante

The question can go all over the place-

Issued and accepted or just issued?- issues and accepted , bank is "ostensibly" entitled to commission. Issued and not accepted, then don't accept it in writing . Silence on the matter means its  accepted after 5 days  unless specified differently in writing. Once a transfer is initiated the actual fee could be very high, but not so before.The whole purpose of the irrevocable status is just that once issued its nearly impossible to be revoked.

A credit cannot be amended nor canceled without  the agreement of the issuing bank  and confirming bank as well as the beneficiary- hence you authorize cancellation of the credit with all involved in writing  with "all fee's for the account of the issuer." He can pay for any fees imposed if he wants his credit released, otherwise he can wait until expiry  if his bank charges over the top.

You should also look for mistakes that the buyer made to mitigate your position is asking that cancellation fee are for his account.

I.e - I asked for the credit on the 5th of June, but it finally was established on the 15 th of June  which cause by supplier to sell the goods elsewhere...etc..etc.

Hope it helps

Davide Papa

www.ftnexporting.com  
Maynor
 
Posts: 44
Joined: Wed Mar 19, 2014 5:12 am


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