Replacing Import Documents after Buyers Credit Funding

Recently a query from importer came in after buyers credit transaction was funded for replacing the underlying import document  with another document.

Reason

  • Delay in receipt of goods as ship got stuck at overseas port.

Incase of Documents under LC

Importer / LC issuing bank has to make payment in stipulated time period if documents are in order.  In such cases where buyers credit is already taken, importer will not be able to replace documents.

Incase of DA / DP / Direct Document

As buyers credit transaction is already funded, importer has three options

  1. Let the existing buyers credit continue without change. LOU Issuing bank charges are already paid and interest on buyers credit has started but importer is yet to receive goods thus his cycle has got stuck.
  2. Prepayment of existing buyers credit and taking fresh buyers credit for new document. Though possible but it will be costly for importer as lou charges are already paid and many funding bank will ask for full tenure interest in case of prepayment.
  3. Amendment in existing buyers credit

Importer should choose either first or third options. First option where delay period is short or importer does not have any other fresh import document to replace. And third option incase of longer delay period.

For amending the existing buyers credit, below process will have to be followed by importer, LOU issuing bank and buyers credit funding bank.

Value of New Import Document

New import documents value will have below three scenario

  • Same value as existing buyers credit transaction.
  • Higher value then existing buyers credit transaction: In this case difference amount is to be adjusted from cash credit (cc) account.
  • Lower Value: Not workable as this would require LOU issuing bank to refund part of the amount back to funding bank.

Process:

  • Importer informs LOU issuing bank reason for replacing the documents.
  • LOU issuing bank informs funding bank by way of amendment with new import document details and reason for replacing the existing document.
  • Funding Bank updates their records and provides a confirmation swift that the same is acceptable to them.

Audit Respective

From audit perspective, both LOU issuing bank and funding bank has to keep record of documents against which buyers credit is taken. Thus it has to be brought on record by following the above process.

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