Overdue Interest and Late Payment Charges on Buyers Credit

Overdue Interest is applicable for the period after due date on which payment of principal and interest is payable to the buyers credit bank. Some banks have been clearly stating these charges in their offer letter or in letter of undertaking format. Once the buyers credit get overdue, they have been raising demand for overdue interest / charges on lou issuing bank. While giving letter of undertaking (LOU), lou issuing bank gives unconditional undertaking than they would make the payment on due date, irrespective of importer’s ability to make the payment and incase of delay would pay over due charges. Thus are under obligation to make such payments.

Reasons for Delayed Payment

  • Error by Importer’s Bank: Importer’s bank made payment not as per the instruction provide mt799 to Buyers Credit bank. Thus, resulting into non receipt of funds. Recently an importer had to pay $900 to buyers credit bank because of this issue which resulted in 5 days delayed receipt of funds.
  • Non payment by Importer’s Bank on Due Date: This can be because of missing to pay on the due date, rollover taken from other bank for existing buyers credit but funds for the same has not been received and any other such reasons.
  • Delayed Payment by Importer: Delay in funding of account by importer for payment to be made on due date.

Overdue interest as mentioned in offer letter / lou of few banks, for example are: 

  1. Overdue interest 2.5% pa over and above applicable rate
  2. Interest for delayed period @US prime + 3% & Late payment fee of $100
  3. USD prime rate + 2% + $500 late payment charges + $100 swift charges per message
  4. 7.5% p.a. for overdue period plus any other charges
  5. Delay repayment attracts penal interest at bank’s prime rate + 2% in addition to penal charges of USD 200
  6. 3% over and above existing rate

Importer’s Perspective

Importer should make take utmost care that payment of buyers credit is made on due date to avoid any of these charges. If possible also get an MT202 copy shared with the buyers credit consultant to further share with Buyers Credit Bank. This would help in finding error if any at the earliest, to avoid such charges.

RBI Regulation

As with the case of prepayment, there is no specific mention of overdue charges incase of Trade Credit made in Master Circular of External Commercial Borrowing and Trade Credit. Thus, inference has to be derived  from other circulars

  • Master Circular on Import of Goods and Services. C.2. Interest on Import Bills. AD – Category – I bank may allow payment of interest on usance bills or overdue interest for a period of less than three years from the date of shipment at the rate prescribed for trade credit from time to time.

Reference

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5 thoughts on “Overdue Interest and Late Payment Charges on Buyers Credit”

  1. We had been provided buyers credit by SBI against our LC limit. We also enjoy a cash credit limit of 200 lacs. But now suddenly SBI have turned around saying LC limits cannot be used for Buyers Credit. The CC limit to the extent will be blocked. Their logic, Buyers redit is meant only for enjoying better interest and not for funding. Is it true? How do we fight this?

    1. As per few banker there was a letter from RBI which was sent to banks around Oct 2011 in which banks were asked to ensure that borrowers be disallowed from borrowing more than their fund-based limits. There was an article in Economic Times talking in relation to same (Click here to read the Article). Because of the said letter importers have been facing the issue mentioned by you.

      As per my understanding there has been no change in relation to earlier stand of RBI and there is no circular which clearly specifies the same. Only way out is to ask your banker to provide copy of the RBI circular with the above clarification or copy of RBI letter which specify the same.

  2. Sir so far In SBI they charged 17.5% interest for Over due. But Today they changed the rate not saying the correct rate, i want to know the correct rate for overdue interest.

    1. Overdue interest charges varies between buyers credit providing banks. Thus cannot give you any specific rate of the same. At times buyers credit banks lou format mentions overdue interest which you can refer.

  3. Sir I work for a bank and for some reasons buyers credit payment was delayed for one day, I was able to send it the next day in the morning (swift message) , now the other bank has claimed one day interest , since the importer can’t be held responsible am I going to suffer or is there any way out ? Please help me out. Thanks!

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