Sblc/bg/pof

This query is : Resolved

kishlaya kaushik (Querist)
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25 January 2013 Sir,
I am facilitating import of metal scrap from Europe for a few buyers in India and on there behalf done negotiations regarding mode of payment with the supplier.Our buyers want to be safe and so we have negotiated on terms where we have to transfer funds only after we inspect the product at destination port.The supplier is accepting payment only through SBLC or Bank Guarantee but not through a regular L/C.This was a bit strange and so we inquired and got to know that even through partial fulfillment of documentation the supplier can get the funds transferred in case of SBLC.As there are a lot of cases of importers getting duped in international trade paying for the actual product and getting substandard product afterwards.So please advice regarding the safest payment way & in our case we should go for a SBLC or Bank Guarantee.
Please advice at the earliest and THANKS for help.

CMA Ajay Jaisingh

CMA Ajay Jaisingh (Expert)
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26 January 2013 Dear Kishlaya,

Since the payment is being made only after verifying the quality of goods at arrival port, your party is quite safe in routine course.

SBLC (not BG) is the only option in your type of cases where SBLC is to be invoked only in case of default of payment from your buyer's side. The same is not possible in normal LC since you will not be able to check the quality of goods before accepting / paying against Docs received under LC.

For both of you, SBLC is the best option in the present payment terms. Your party can never claim funds against the SBLC without submitting the required docs in SBLC. You need to work on

- the type of docs to be asked in the SBLC so that your supplier can ONLY claim the payment in case of default from your side.

- Other conditions in SBLC so that there is no chance of fraud from his side and his bank.

- the scenarios where quality of goods is lower than agreed terms and you don't want to make full payment and your buyer is still safe under SBLC also where unjustified payment is not claimed by supplier under SBLC.

You can contact me offline for detailed discussion on this.

Regards,
CMA Ajay Jaisingh
M.Com, ACMA, CDCS (Certified Documentary Credit Specialist)
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Ajay Jaisingh & Associates
Cost Accountants in Practice
Office: 1204, "MATRIX", B/H Divya Bhaskar House, Nr. Vodafone House, Prahladnagar Corporate Road, Off S G Highway, Ahmedabad-380051.
Mobile: +91-9825895971
Email: ajay@ajayjaisingh.com, jaisingh.ajay@gmail.com