Full question:

Once again I am here looking for your assistance. The first question I have is:

1) I need to know the distinction between the Non Operative DLC and a Pre advised DLC?

2) I have a provider for agricultural products to trade and he is utilizing this protocol – I need you to tell me if this is a viable and accurate course of action:
• Official demand is forwarded to the provider from the purchaser as LOI & BCL set up;
• Provider releases an official corporate proposal for the purchaser;
• With written approval of this proposal, the provider releases the trading agreement to the purchaser for endorsement and returned;
• Upon receipt by the provider, the purchaser is directed to arrange a non operative DLC in support of the provider;
• Upon receipt of the non operative DLC, the provider’s funding center releases the POP to the purchaser’s funding center in order to activate the funding method making it functional;
• The cargo consignment is readied based upon selected Incoterms 2000;

3) The provider utilizes this type of guarantee:
Guarantee of deliverance: In the event of non compliance regarding the delivery of products by the provider or a postponement of the agreement from the purchaser will be sanctioned via a penalty clause within the agreement at a sum the purchaser favors. We will not convey “PB”. This phrase makes certain the lawful and complete fulfillment by the two parties to the agreement – the purchaser and the provider. We propose a one hundred percent [100%] guarantee of transport and deliverance in the agreement.

Is this considered a correct method of providing a guarantee?

As per usual, your answer is very much appreciated and I am optimistic that others reading your replies will benefit from your answer as well.

Answer:

Carefully track these answers to your question in the following – The majority of these are answered in URPIB rules and my book.

1) Non operative DLC has no meaning. As far as PA-ITDLC

Concerning its use with an intermediary – A pre advised irrevocable transferrable DLC when released as a UCP600 signed method of funds, means the purchaser releases a PA ITDLC, the provider presents to perform one term of the credit – upon getting this the funding center exchanges the PA ITDLC to a full functional DLC that is then capable of being transferred. If the stipulation is left unfulfilled the credit can’t be transferred. [For Instance - Stipulation: Proof of products certificate as described in the agreement]

According to UCP600 as long as the stipulation has been achieved – the releasing funding center NEEDS to make the financing good to go and because of this it can’t be withdrawn – when the provider is identified – therefore it is less expensive for the purchaser to arrange as is perfect for utilization by the intermediary. A pre advised credit even as released by a UCP600 loyal funding center is not utilized by every funding center therefore the purchaser must request from his funding center whether they are able to arrange a PA ITDLC prior to the agreement being endorsed.

2) The final purchaser operating with the provider can utilize whatever procedure they like – they could use oranges to complete a transaction if this is what they agreed to – heading to court as so many have, when the product deliverance falls through. When the intermediary is part of the equation LOI/ BCL and this sort of thing can’t be utilized – as mentioned so often in previous responses – provider, final purchaser and intermediaries NEED to use the most superior and secure protocols – these are the quotes, offers, payments, [P.G] delivery, collection are the best and most secure means of functioning.

3) Guarantee: Already this too has been replied to often in prior answers – performance guarantee isn’t a typical trading function in the industry but whenever this comes up then the purchasers DLC is released and approved initially, the provider then releases a performance guarantee formatted as such as a UPC600 SLC or ISPB 98 SLC equating to and no more than two percent of the total worth of the cargo consignment – 1.5% is fine. DO NOT EVER ATTEMPT TO RELEASE AN SLC P.G FIRST – NEVER!

An SLC can’t AND MUST NEVER BE utilized for product payment though it is fine for paying out commission and certain other things like performance guarantee – [NOT A ‘PERFORMANCE BOND’ AS IT IS SO OFTEN CALLED – EVEN BY FUNDING CENTERS!]

When the provider does not deliver the product on schedule for whatever reason then the purchaser can make a call upon the provider P.G 9SLC – that is paid out by default without any questions asked due to the one condition of release – In the event that delivery is delayed, the purchaser makes the call and receives the P.G totaled sum.

Therefore, the SLC is an ‘unconditional method’ when just one stipulation is not achieved [non performance of deliverance] the SLC can be collected…and there can be no argument. Whereby, a DLC is a ‘conditional’ method reliant upon numerous deliverance policies/ paperwork in order to become viable prior to collection processes being started.

Hence, ‘the non fulfillment regarding the transport of products by the provider or the postponement of the agreement’ is ridiculous – that is a violation of the agreement – The purchaser supplies the DLC when this is approved [within five days] in return; the provider presents the binding SLC PG – quite easy. No delivery – purchaser receives SLC – Cargo consignment arrives, or next consignment is transported.
I hope I have been able to assist you – you should take for granted that there is much more that could be discussed for each of these questions – you at least get the basics described here.