A TRICKY WAY TO VOID A LETTER OF CREDIT. PART 2
06/08/2010
Another sensitive point in the letter of credit is the last shipping date. If the goods are shipped after it the buyer can reject the discrepancy and refuse to pay. So the dishonest buyer can try to use this point and act as follows. Some days before the next shipment the buyer will contact the seller and tell him about a very difficult market situation. The market price is going down, the goods are difficult to sell, all his clients are buying cheaper elsewhere etc. As the situation is very difficult the buyer will ask the seller for a considerable discount or to wait with the next shipment. Most likely the exporter will reject the demand as in this case he will lose the money.
A few days before the shipment the seller receives a letter from his bank stating that, according to the instructions given by the applicant and with the acceptance of the beneficiary (the seller), the letter of credit was amended. Any points of the L/C could be amended: the price, the quantity of the product or any other terms. Such a letter will definitely be an unpleasant surprise for the exporter. He will have to find the person in his company who “accepted” the amendment, contact his bank and the buyer and ask for the explanation. The bank will explain that the letter came from the issuing bank and the bankers have no idea about any negotiations between the seller and the buyer. The importer will tell the seller that he thought that they had come to an agreement during their last conversation some days ago and that is why he had instructed the bank to amend the L/C.
While trying to find out what happened and how the L/C was amended without his acceptance the exporter could easily miss the last day of shipment for the next lot especially if the whole story happened just before it. Not willing to work under the new L/C terms the seller could put the shipment on hold trying to clarify the situation. If this happens we can see that the buyer has achieved his goal. He has won the time, the shipment is late and he can easily use this discrepancy to reject the payment.
In this situation the seller should remain absolutely calm and remember that the buyer (applicant) cannot amend the irrevocable letter of credit without prior acceptance of the seller (beneficiary). To be valid the acceptance should be communicated in writing through the banks. The seller can simply inform his bank that he rejects any amendment of the L/C and it will make the “new L/C” void. The exporter can continue the shipments according to the L/C terms and if all the papers are in order he will be paid in full.
