Sharing is Caring, today's topic is How to discover soft term in L/C
Do you know what is“soft term"? I believe some people have been trapped by it ever. But you are lucky today! Today I will teach you how to discover “soft term”.
“Soft term” was also called "trapping term", I guess you know what it means by this name.
Let me list several situations for you as below!
It was ruled in L/C that goods should be suspected and related inspection report should accompany with all documents. But if buyer postpones to hand out that “inspection report”, exporter cannot collect all documents and submit them to the bank within the specific time, which makes great discrepancy, so buyer has right to refuse to pay. Exporter is easy to suffer losses then.
Situation 2: “shipping date and line should be advised by applicant (buyer), with buyer’s confirmation”. So if buyer does not advised even it is very late, L/C cannot be executed favorably and become a kind of L/C that the buyer can revoke at random.
Situation 3: "one of the original B/L should be sent to applicant(buyer) directly". Goods can arrive in a few days in some countries while document needs more than 10 days to reach the bank, which will delay the time of receiving goods. But in this term, customer can get goods without paying to bank. Then they just need to pick up some discrepancy and then they could refuse to pay to the bank, and the supplier will face the risk of losing goods and money–especially under the circumstance that issuing band colludes with customer.
Do you see how terrible “soft term” is? Generally banks do not accept loan against collateral on this kind of L/C, so it is very harmful.
Then how to distinguish “soft term” of L/C? There mainly are two skills: one is to make sure the customers cannot pick up goods before they finish the payment and get the bills (whose jargon is redeem). Terms like“send B/L to buyer directly” is obvious “soft term”; secondly, make sure "making bills without counting on others“ specifically speaking, "not counting on the customer", which means there shouldn’t be any document on the L/C signed by customer, we exporters make all of them by ourselves or official organization or shipping company. All terms that are opposite to this will be consider as soft term, such as "buyer's inspection report", "buyer's shipping advice" and so on.
Since knowing the soft term, of course we need to argue on it or take special means to make the customer cancel that term. But "soft term" cannot be "killed off" for sure, especially some internationally famous buyers. Do not ask me why, you know that. So it depends on yourself when facing big buyers. But as long as there is soft term, please be more careful.
At last, I need to remind you of something that the process of examining and verify is very important and it is a “technological work”. Open up your eyes and be very alert, please!