We all want to get paid
Tuesday, April 29, 2008/
Somehow newby-exporters seem to assume that they will be paid – it’s not always so, but here are some tips to make it more certain. LYNDA SLAVINSKIS
By Lynda Slavinskis
Apart from visions of global domination, all exporters have at least one thing in common – they all want to get paid! The easiest way to ensure payment is by asking for it upfront before you start to manufacture, but obviously this does not always work.
One payment option is by letter of credit or documentary credit.
Documentary credit has two meanings – it refers to the actual document of undertaking issued by the bank at the request of an applicant (the buyer) to pay the seller a sum of money under specified conditions (for example, seller provides compliant documents for the purpose of transferring property in the goods or possession of the goods to the buyer).
Second, it refers to an arrangement for effecting payment in a transaction under which the bank acts as an intermediary between the seller and the buyer as a provider of finance to the buyer or a guarantee to the seller. The obligation to pay arises as a result of a contract of sale stipulating payment by way of documentary credit as well as supplementary contracts between both buyer and his bank and seller and his bank.
The tricky thing with documentary credits is that to enforce them is a matter of strict liability. If conditions of the documentary credit are not satisfied, the bank will not pay. This is where freight forwarders come in.
Because shipping documents need to be provided for the bank to pay up on a documentary credit, your freight forwarder needs to make sure that bills of lading etc are correct, especially in relation to description and quantity of goods.
There is a famous case where a bank was allowed to refuse a bill of lading which stated the goods as being “machine shelled groundnut kernels” not “coromandel groundnuts” as described in the letter of credit, even though it was later established both descriptions referred to the same nuts. In another case, the bank was rejected a bill of lading which revealed a shipment to be short by three bags of sugar.
The lesson: Freight forwarders need to be very careful when drafting of bills of lading so that descriptions match with letters of credit, otherwise you, the exporter, may not get paid. It pays for you, the client, to check any documentation going out from your freight forwarder against any documentary even if it is in really small print and seems to be a generic document.
Lynda Slavinskis is an outgoing, intuitive and commercially savvy lawyer. She has worked in-house at Sussan Corporation and Tattersall’s and now assists small and medium businesses with import, export, leases, franchising, employment and general business advice as principal solicitor of Lynda Slavinskis Lawyers & Consultants. Lynda is on the Victorian State Government’s Small Business Advisory Council.
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