I exported some goods to Bangladesh under Letter of credit at sight, consignee: to the order of issuing bank. The issuing bank received the shipment docs 20 days before (as per DHL tracking) , in last 20 days no discrepancy notice received from issuing bank. My bank sent swift message asking for payment but no reply from issuing bank. No add confirmation. At this situation pls suggest me what can I do?
Push your bank
Your bank should be pushing the issuing bank to release payment or authorise reimbursement. As no MT742 or formal discrepancy notice has been issued and the issuing bank has not stated that the documents are held at the disposal of the Applicant they have waived their right to reject the documents undet the L/C and must effect payment. Your bank's Correspondent Bank division should be also be informed as they can assist with the pulling of interbank lines if the payment is not forthcoming.
I made very good experiences by asking for high interest-rates
Ask for almost double the interest rate an average company would usually pay in your country and threaten to enter legal proceedings against the issuing bank should the payment not be received within three days. Send this message to the attention of the Head of International Department of issuing bank's Head Office.
Usually, you will at least receive the original amount within a week. If not, phone them - and be tough! If that does still no good, sue them or let the applicant sue them.
And then give us the name of that bank.
-Each long journey starts with a small step-
Best regards
Frammi
Within how many days the issuing bank should send the payment?
Dear Frammi,
Thanks for your reply. Is there any specific law / rule that within how many days the issuing bank must sent the payment, if there is no discrepancy.
The banks name you asked is, AL-ARAFAH ISLAMI BANK LTD. Bangladesh. and their L/c number is 107608010168. 3 days has been passed, but still now didnt receive the payment.
Not very Islamic, if I may say so!
Dear Evan,
unfortunately there is no official deadline for a payment. However most practioners consider a period of up to ten calendar days (some even say only three bank working days) as a reasonable period for any credit to be paid.
So, to be fair, calculate the interest from ten calendar days after receipt of docs by AL-ARAFAH ISLAMI BANK LTD. Bangladesh until two banking days in the future, thenclaim payment of the credit amount plus interest plus your expenses to be paid until teh said two bankling days in the future and threaten to sue them, if funds should not be immediately and fully paid!
By the way, the credit was still valid when docs were presented? If not, they had no obligation to reject the docs in time, although they should have done so and you could not sue them or claim interest.
-Each long journey starts with a small step-
Best regards
Frammi
Of Course Not Islamic at all... :(
Dear Frammi, Thank you very much and your suggestions are very much valuable for me. I would also like to know, when should I ask the Bangladesh bank to pay the interest? I contacted a Bangladesh Lawer, to sue the Bank, but he suggested me to wait till we get the money, because in Bangladesh it takes years when a matter is supposted to be settled in the court. The legal system is very slow.The Docs were presented at the issuing bank before the L/C expiry date. Actually the importer is not willing to pay to the bank, because his container will arrive one month later at the destination port.
Bangladesh Bank - Delayed Payment
"Actually the importer is not willing to pay to the bank, because his container will arrive one month later at the destination port. " In that case all is not lost; there is hope yet! You may have to be patient till the container arrives, the payment is finally remitted. Probably only then you can hit them with interest charges and other claims. Should I say, "Keep watching this space?" (Would like to know how it shapes up.)
I completely agree to what Catalyst wrote
Before entering in legal proceedings wait for the container to reach Bangladesh (By the way how can it take almost two months until the container finally reaches Bangladesh? Do you use a wooden raft ;-)) ?)
If they don't pay then they will never pay.
However, this behaviour is very bad for AL-ARAFAH ISLAMI BANK LTD. Bangladesh's reputation. I think it's childish to act like this just for one customer as if their credits are no longer accepted even this customer will leave them.
Nevertheless, you can claim your interest and expenses at any time, then just write that you c o n s i d e r to take legal action against them.
All the best to you and please keep us informed aboiut the outcome.
-Each long journey starts with a small step-
Best regards
Frammi
QUESTIONS AND COMMENTS ON HOW TO AVOID THIS HAPPING
Dear Mr. Peter M
Thank you for bring up a real world situation. What I would to discus / investigate with the group is how to avoid this type of thing occurring next time.
So my basic question is how to engineer the L/C process so that payment of the L/C is made to the exporter in good time before the ship leaves port, thus giving the exporter the option of off loading his container from the ship and/or retaining the goods if no payment is received?.
I’m not an expert and from what I’ve seen there is a lot of conflicting info on the internet but I think there are two scenarios that could do this. (And I only use Bangladesh as an example in this forums thread)
1) The use of a confirmed pay on sight L/C? Which costs more and I would like to ask that under the new 600 rules the confirming bank now has 5 days to accept or reject your documents, and on the 6th day must pay right?
2) Irrevocable pay on sight LC, which I send to a friend in Bangladesh who presents directly to the issuing bank, allows them to examine the documents (under the new rules for up to 5 days right?) and on the sixth day collects the draft, caches it there and TT’s too my account? Or safer collects the endorsed draft and informs me accordingly, but what happens if the Bangladeshi bank simply refuses to cash the draft later? Can I cash the draft at my bank without any problems or incurred costs?
3) For the above to work would require the goods to be delivered to the port, and the bill of lading issued in plenty of time to collect payment before the ship sails.
a) For the FOB price; I’m not sure if you could get the bill of lading before the container is stored on the boat? I.e. once on the boat is hard to remove?
b) My preferred method is the same as ‘a’ but instead of an FOB price an (along side ship price) which should increase the time period to collect payment before the ship sales, and make it easier to take the goods back if non payment?. However I doubt an international importer will accept an along side ship quote so if issued a CIF price this will also increase the time because the bill of lading, insurance Etc can be issued a few days before the container is actually loaded on the ship, right? Also I’m not sure if the CIF price proportion of the shipping and/or insurance is repaid by me before sailing, or the bank, please explain??
4) Also I would like to ask in reference to Frammi remarks early that (quote) “unfortunately there is no official deadline for a payment. However most practioners consider a period of up to ten calendar days (some even say only three bank working days) as a reasonable period for any credit to be paid”. After researching various internet sites I seem to be collecting conflicting info on this. My understanding is that the bank now has 5 days to evaluate the documents and if pay on sight must front up on the sixth day. However if the L/C doesn’t specify a due date of payment there must be some rule right? Otherwise theoretically the bank can accept the documentary evidence etc, but then not pay for the next 50years or so, please don’t think I’m being silly but you can see where I’m going with this?
Mr. Peter M as some back ground over the last 10 years or so I have spent sometime on and off working in Bangladesh. One person I worked for, who is fairly high up in their banking system told me the usual scam goes like this. The purchaser (who may or may not work for the issuing bank but certainly has “friends”) withdraws his funds from the bank / becomes insolent, or the L/C you where issued was a back to back and the other bank is debunking on payment, at which point the issuing bank will do everything it can not to honor the L/C (and in this case is blazingly outright refusing to); meanwhile your goods are sat on a Bangali wharf in ‘storage’. Next the wharf agency / customs send you a large bill for ‘storage fees’ and demands payment within so many days or the goods will be sold at auction to defer their costs (which they can legally do and is in the fine print of their shipping agreement somewhere). Now one of two things will happen;
a) either you will pay and next week receive another demand; (and now that ‘customs-port authorities’ have some money in there hands they might well fell obliged to be lenient towards your customers ‘duties’ should the L/C now be honored); ultimately this imposes a high premium on you if you decide to have your goods shipped back/returned to you; at which point the customer will contact you and offer to pay for the goods right now at a lower price; (also note that basically they do the same scam if there is a discrepancy in the LC doc’s the purchaser will agree to amend but will demand a reduction in price ‘due to storage costs’ or they will not accept the amendment).
b) Or when the goods go to auction the original customer will bid for them and with almost certainty, given the corruption there, be the one buying the goods for considerably less than he would have paid you (all nice and legal like). You can sue, yeah, but you’ll need to be well connected there, it will take time and even if you do win there’s still no guarantee you’ll get paid, but by all means threaten to. You can go there and bid for the goods yourself (if you can find exactly when the auction is and get in), or find a new customer to buy your goods, or get them shipped back to your country if possible. But, if you do go there take it quietly, don’t jump up and down too much because if you upset the beurocrates too much you’ll get nowhere and be aware that assassination is much cheaper in developing countries than developed ones and carries a good chance of improved fortune for your customer. I don’t want to sound to pessimistic or over the top because it might all just be a storm in a tea cup over nothing.
The other side of the coin might be (and I’m not whishing to suggest anything by this, merely that it exists) is that there is two markets in a country like that, one white one black. Perhaps half of the goods real value has already been paid to the supplier, who then shipped the goods with an L/C for the remaining half which the customer presents to customs as beginning the value of the goods, very common and customs are well aware of it; believe me. In which case the customer may well be thinking he has already paid a large deposit for the goods so the seller can wait until he’s dealt with customs, etc, (no problem just a few dollars spread around) then the L/C will be honored (well something like that or he could be physically at the ‘wharf’ right now inspecting the goods to make sure he’s not the one being ripped off before instructing his banks ‘friends’ to honor the L/C, like).
With respect to you and your situation
Willy
Dear Peter, many thanks for your comment on this!
Dear Willy, gosh what a list of questions. I try to answers them one by one:
quote
So my basic question is how to engineer the L/C process so that
payment of the L/C is made to the exporter in good time before the ship
leaves port, thus giving the exporter the option of off loading his
container from the ship and/or retaining the goods if no payment is
received?.
unquote
answer:
This is very much a question of market power! Don't forget that the buyer also has security-needs! Why should he pay without knowing the goods are on their way. International business is nevertheless a question of having faith in the banks involved and in one's partner.
1) A confirmed L/C could serve you well - in case you get a true confirmation in which the confirming takes up the docs herself and doesn' await the taking up of docs by the issuing bank and also provided - as Peter M wrote - that you manage to produce credit complying documents!
Payment on the sixth day is not obligatory. The Rules are silent about the date of payment! After 5 banking days docs have to be taken up and paid, but payment could also happen thereafter.
2) I can't see what your Bangladeshi friend should do there. The bank needs a presentation of documents to be able to pay. So whether your friend delivers the docs to the Bangladeshi bank or a courier service makes no difference.
When talking about sight payments forfaiting cannot really come in place. If it was usance, you could forfait the draft/claim under the credit on a without recourse basis. But even such a forfaiting requires the taking up of the Bangladeshi bank.
3) This is nor realistic. The issuing bank will also have an eye on it, that only on board B/Ls will be demanded under the credit.
a) It's not a question of delivery terms. The carrier is
not interested in them. However you can't get an
on board B/L before lading on board!
b) Maybe it's your preferred method, but your doubts
seem to be widespread ;-)) I never had even a
single FAS-L/C in twenty years!
CIF is the same like FOB, just that you also have to
pay the insurance premium and the freight charges
in advance!
4) No, definitely no official rule. I don't hope the
Bangladeshi bank would like to play the 50-year game
you have thought of. If so, they would lose their
complete reputation and International business.
They would be banned from all other banks.
This trick can only be played once!Anyhow, you have
my respect for thinking so far!
The remaining of your comment is very interesting and offers a deep insight in the experiences you have made in Bangladesh so far. Even assassination - hughh!
In this case, with your experience made, I would insist on 100 % advance without any security for the buyer. Or drop the business!
However, my experiences were better. But this maybe because the Bangledeshi banks might be more dependant on German credit lines, which were also at stake!
-Each long journey starts with a small step-
Best regards
Frammi
Willy - that's a big question
You are mentioning that you would like to protect yourself and make sure that you either get paid or have the ability to control the goods in the event of non-payment. Believe me, you are not alone in this and traders around the world are trying to do the same thing thousands of times every day.
The Letter of Credit has been designed to provide comfort to the parties relating to shipment of goods/provision of services and payment but it is not a guaranteed method of payment and relies solely on the exporters ability to provide credit conforming documents. Most exporters are not very good at doing this.
So, what can you do - here are some suggestions:
1. Obtain 100% payment in advance of letting go of the goods - this is always the best option from a sellers point of view, but very difficult to obtain, for obvious reasons.
2. Instead of shipping against a Letter of Credit, request a bank guarantee from your buyers bank that is payable on demand in the event of the buyers failure to pay after shipment of goods. Keep the guarantee simple and make sure the issuing bank is of good quality.
3. Credit insure your receivable - most countries in the world have an export agency that will provide insurance for export sales in order to promote exports (in Canada this is EDC, in the UK it is ECGD). Even if there is not a government body in your country that will do this, there is an insurance market that can provide the cover. Include the cost of the premium in your sales quote and the buyer ends up paying for your insurance. Most insurers will cover 85-90% of the invoice value.
Unfortunately there is no magic answer to your problem so use common sense and investigate government or local market assistance for exporters. Better still, go and talk to a trade finance expert at your bank; this is what they are paid for.
Happy selling