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The problem of letters of credit in India
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We exported a batch of goods to India.Settlement. After submitting the documents, the bank raised three discrepancies. The client took the opportunity to demand a 20% price reduction before agreeing to redeem the documents. Now the goods have arrived at the port, and daily demurrage fees are being incurred. How can we resolve this situation?
Lucas LiuYears of service：8Customer Rating：5.0
Senior Operations ConsultantStart a Chat
The India you encountered?L/C?The core of the discrepancy dispute lies in the strictness of the review of document compliance. Indian banks generally follow UCP 600，but the standards for document review in practice tend to be increasingly stringent. In your case，it is recommended to take the following measures immediately。
First，analyze the nature of the discrepancies item by item. If they are non-substantive discrepancies (such as spelling errors or punctuation marks)，according to Article 14 of UCP 600，the bank has no right to refuse payment. You should send an official letter to the issuing bank through the presenting bank，citing specific provisions to defend against the claim。
Secondly，check whether the letter of credit contains "soft clauses". Some Indian banks set hidden conditions such as "the cargo inspection certificate must be issued by a designated third-party institution"，which are very easy to create excuses for refusing payment. It is recommended to retrieve the original letter of credit for review。
Third，risk isolation. If the goods have arrived at the port，immediately check the status of the shipping company's bill of lading. If it is an original bill of lading and you still hold it，the ownership of the goods has not been transferred，and you can consider reselling or returning the goods. If the customer has picked up the goods with a bank guarantee，it constitutes a violation of the bank's operating procedures，and you have the right to pursue legal responsibility against them。
Finally，preventive measures. When dealing with letters of credit involving India in the future，it is essential to clearly stipulate the "tolerance clause for discrepancies" in the contract，or to require Indian clients to choose international banks (such as HSBC India and Citibank India) to issue letters of credit，in order to avoid local banks overly protecting their local clients。
Linda GaoYears of service：7Customer Rating：5.0
Documentation SupervisorStart a Chat
From the perspective of the logistics chain, the problem you mentioned is that there is a serious disconnect between the flow of documents and the arrival time at the port. The demurrage fees at Indian ports are extremely high (up to $200-300 per day at Nhava Sheva Port), so it's crucial to act as quickly as possible.
First, immediately contact the freight forwarder to verify the status of the bill of lading. IfBill of Lading (B/L)Receive貨人for“To Order of Issuing Bank”,ClientsNot贖SinglePreviousI can't do it.Pick up goods,This isYourNegotiation籌碼.IfDoneDo電放Process and Frequently Asked Questions for Exporting Mining Machinery to Southeast Asia | Shanghai Import/Export AgentTelex ReleaseTrade dispute settlement mechanisms,則貨PowerDone失控.
Secondly, apply for "conditional release of goods". By putting pressure on the issuing bank through the presenting bank, the applicant bank can secure the goods for pickup. In this way, the client can proceed with customs clearance first, but the ownership of the goods will still be pledged to the bank, thus avoiding the continuous accumulation of demurrage fees in the port.
Third, the document remediation window period. Some Indian banks allow "document correction", that is, submitting amendment documents within 5 working days after the discrepancies are raised. If the discrepancies are easily corrected items such as weight errors in the packing list, immediately prepare new documents and submit them through two channels: express delivery and electronic scanned copies.
Fourth, review the logistics terms. If the contract is CIF Mumbai and you have purchased insurance, check whether the insurance policy covers "political risks" and "buyer's default". Some Sinosure insurance policies allow for such coverage.?L/C?For losses arising from disputes, the insurance claims process can be initiated simultaneously.
Michael ZhangYears of service：6Customer Rating：5.0
Customs Declaration & Compliance ExpertStart a Chat
The price-cutting behavior of Indian customers essentially involves taking advantage of the fact that Chinese suppliers are willing to accept orders of any size, regardless of the profit margin.?L/C?Use technical provisions to engage in commercial blackmail. During negotiations, it is crucial to avoid revealing a sense of urgency to deliver goods. It is recommended to adopt a two-track strategy of "legal deterrence + emotional appeasement".
First, restructure the sales pitch. Instead of directly discussing the "reduction amount," send an official email stating: "In view of the discrepancies raised by your bank, we have initiated an ICC arbitration procedure under UCP 600. If we do not receive full payment within 7 days, we will notify the global banking system to add your company to the high-risk list for letter of credit transactions." Indian businessmen highly value international reputation, and this approach is often more effective than simply offering a price reduction.
Second, make concessions in stages. If the client insists on lowering the price, you can design a "conditional discount" - for example, agreeing to a 5% price reduction, but requiring the remaining 15% to be paid as a quality assurance deposit via telegraphic transfer (T/T) within 30 days after the goods are cleared. This way, you can save face and secure most of the payment at the same time.
Third, break the deadlock in the relationship. Use LinkedIn or industry associations to identify senior executives or shareholders of the client company and communicate with them directly. Indian companies have complex decision-making chains, and purchasing managers may intentionally create disputes for personal kickbacks. By bypassing the middle layer and directly engaging with decision-makers, you can often resolve issues quickly and efficiently.
Fourth, long-term strategy. After this incident, it is recommended to gradually shift the payment method for Indian customers to "30% prepayment + 70% sight letter of credit", or require them to open an "irrevocable, confirmed" letter of credit. Before the next cooperation, it is necessary to obtain the other party's bank credit report (e.g., through Dun & Bradstreet) to avoid doing business with companies that habitually refuse to pay.