Letter Of Credit: Shipment Of One Cow (Partial Shipments Prohibited)

As we have discussed in various other blogs, letters of credit contain precise requirements that the beneficiary must meet in order to receive payment. The letter of credit must also state the specific documents needed to meet the requirements. Then, other conditions may exist such as whether partial shipments are allowed or not. If allowed, the beneficiary may make a partial shipment, present documents and get paid for the value of the goods shipped. Later he may make another shipment, present documents and receive payment, etc.

One beneficiary enjoys telling the story of the letter of credit he received for the shipment of “one live cow.” The letter of credit contained the condition that partial shipments were not allowed.

He thought this condition rather humorous since a partial shipment would be, well, utterly impossible!

Letter of Credit Non-payment Resulted in Paper Slippers Becoming a Tax Deduction

Letter Of Credit, Beneficiary, Applicant

LETTER OF CREDIT ISSUED FOR THE PAYMENT

A New York bank issued a letter of credit for the importation of paper slippers used in medical clinics and hospitals. The patients donned the disposable slippers as they strolled through sanitary areas of the hospital. The merchandise description on the letter of credit read as follows: “paper slippers with soles double-stitched.”

"DISCREPANCIES" IN THE DOCUMENTS

The documents presented by the beneficiary did not properly indicate double-stitched soles. The issuing bank inadvertently overlooked this requirement and honored the beneficiary’s request for payment.

When the applicant received the slippers and inspected the incorrect documents, he rejected them, demanding that the issuing bank refund their money. Since the bank had already paid the beneficiary, the bank became the unwilling owner of single-stitched paper slippers with little hope of selling them to recover their loss.

DONATE THE SLIPPERS

An official at the bank ingeniously suggested they donate the slippers to a Veterans Administration hospital and capture a tax deduction. The savings resulting from the tax deduction nearly compensated the bank for its loss.

Another lesson learned, thanks to Jim Harrington.

The #1 Financial Risk in Importing and Exporting

Knowing the risks associated with importing and exporting can ultimately lower those risks.  Finding the right partnership produces profits and there are resources to finding legitimate overseas partners.

Roy Becker of Roy Becker seminars has 30 years of experience in importing and exporting.  Becker is an expert in letters of credit and the International Chamber of Commerce INCOTERMS.

The #1 risk is of course, getting paid.  Risks falls under three categories.

1. Commercial risk.  The payment arrangement must be forethought and agreed upon by the seller and buyer.  Cash advance payments, letters of credit and bank intermediaries can be methods for determining risk.  A letter of credit is not a bank guarantee of payment and is document intensive.
2. Country risk.  A specific country may have risk due to business methods, economics and political issues which can result in unexpected investment losses.
3. Currency risk. The exchange rate must be determined.  A bank can guarantee exchange rates on a specific day to elevate the risk and solidify final costs.

INCOTERMS determine seller and buyer delivery issues like cost, risk and responsibilities/duties.  The most misunderstood issue is at what time the title passes meaning possession and ownership are two different terms.

Roy Becker Seminars give in depth use and definition of importing and exporting.  To contact Roy Becker Seminars, visit; www.roybeckerseminars.com.

To learn more about INCOTERMS visit; www.iccbooksusa.net.