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Do you know to see through the L/C trap

Posted by: Jack | 2016-09-01 10:37:02

In today's trade industry, L/C becomes the "new favorite" because of its higher safety, but it also becomes the "new trap generation" of some unscrupulous businessmen and the commodity inspection terms is their "favor".

Then, what kind of traps will occur in the L/C? Now, let's take a look at how to see through the "trap" of L/C.

First, set the customer inspection terms
In the L/C terms, unscrupulous businessmen often prescribe beneficiary to submit a passed inspection certificate when doing the negotiated payment which looks very reasonable that how can I fulfil the payment without checking your goods? So the initiative is under full control of the customer. Once the importer does not or put off open the inspection certificate, we will not be able to get the certificate in time to the negotiating bank and the issuing bank will refuse to pay because of the delay. Or if the importer nitpicks the goods and does not issue the inspection certificate, it will result in the refuse payment by the issuing bank because of the discrepancies documents. By this time the other side will cunningly threaten to lower the price. At the same time, the goods has already reached the port. The longer the goods stay in the port, the bigger the damage and the more port charges. Therefore, the exporter has to lower the price reluctantly.

Second, the signature of the authorized signature and bank sample is inconsistent
Some unscrupulous businessmen require the commodity inspection certificate by the third party rather than the customer inspection certificate. But this kind of L/C tends to have a problem which is that the signer signature of the commodity inspection certificate must same as the reserved seal of the issuing bank. The reason seems to be good which means to prevent the forger. But actually it doesn't make sense because the bank only check the documents according to the international practices and no need to judge the authenticity of the documents. As the negotiating bank, without the signature sample, how to judge? Besides, even if the negotiating bank has the signature sample, as long as the issuing bank deny their consistance, the negotiating bank and exporter can do nothing. Unfortunately for this kind of L/C, the issuing bank will always refuse to pay on grounds of the inconformity signature. So the issuing bank releases the primary obligation and the payment initiative is totally in the hand of the importer. Then the exporter can only wait for the importer to sign the certificate to receive the payment which will lengthen the receipt time and occupy our fund. What's more, the interest is missing which increases the export cost.

Third, carefully design the Registration agencies
Increase the difficulty of registration to make us difficult to register or difficult to register in time, leading to the man-made discrepancies and refusing to pay. For example, some L/C require our commodity inspection authority approved by the importer consulate while there are no such institutions in local and must go to Beijing or Shanghai for dealing it. It delays the registration speed and easy to cause the delay of sending document. Once there is any wrong with the documents, it will be very inconvenient to revise it. And when the revised documents send to the negotiation bank, the L/C has exceed the validity, resulting in the invalidation of the L/C and causing the tremendous risk in the receipt of proceeds.

With so many risks, there are some problems that the foreign trade enterprises need to pay attention to as the follow:

First of all, carefully check the document and discover the "soft clause" earlier.In the trading processe, we should check the L/C with the contract immediately once we receive it and see whether they are consistent and whether we can fulfil the clause. If find any problem, we should contact the issuing applicant for revise in time. Once you find the problem after the goods has been loaded, it is too late. If the importer do not revise the L/C, we will be in the passive situation.

Second, try to ask the customer to use some big issuing banks with good reputation. Since they are more focus on their reputation and will treat the "soft terms" issue very seriously. So the risk will be relatively smaller.

When signing the contract,we should try to persuade the customer to use our domestic commodity inspection authority for commodity inspection. With the reform and opening-up policy, in the recently two years, China's in China to practice the commodity inspection. Nearly two years since reform and opening up, China's commodity inspection authorities receives higer international popularity and higer credit that the traders tend to admit its inspection results. If we can persuade the customer to use our commodity inspection authority, it can not only facilitate the our domestic enterprises but also hold the initiative in our hands.

Market is like the battlefield. Enterprises should always remain vigilant and don't be framed by the profiteers in the L/C settlement. Especially when the other party intentionally get your goat,so you should pay attention on it.

Tags: L/C, Trap

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