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Operative & pre-advised LC's 5 replies,5277 views

#1
I have several procedures on hand for import/export procedures... and noticed use of operative and pre-advised Lc's to be quite commonplace.

When I called my bank. they said that long ago hardly any bank uses operative nor pre-advised LC's, and told me to be carefull who I deal with.

Can anyone attest to the obsoletion of the operative & pre-advised LC?
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#2
Re: Operative & pre-advised LC's
Replying to [mikeo1313]:
mike,
your bank is right: the pre-advised L/C is B/S - there is no such thing.
Once the buyer has his bank issue the L/C, the bank first writes a draft for buyer to approve. The L/C draft shows among others the date and conditions for payments to start.

Once this is done the L/C enters the bank system with L/C control numbers, bank numbers, TELEX numbers. At this point it is already verifiable and can be confirmed by buyer's bank - because they have issued it with the funds available from buyer.

It becomes "operative" when the seller's (beneficiary's) bank has received and confirmed it.

#3
Re: Re: Operative & pre-advised LC's

Replying to [hexe2]:




overlooking this step:

"seller will issue 2% PB & POP to activate the non-operative L/C"

[Inserted by moderator] 2% Preformance Bond- Means that for an L/C to become valid the Seller must send 2% of the Face value of the L/C via Payment On Presentation via T/T bank to bank before the L/C becomes a valid enforceable document.



The wording seems to encumber the ideal ideology of not allowing niether a seller nor buyer **** more than necesary nor non-strategically.




Since non-operatives are BS.. is their customary verbiage that goes into a standard LC or PB that allow them to "activate" eachother somehow?




if not what can be considered the best way to strategically go forth and deal with the eventuality of a client or supplier not follow through? What can be considered a "best practice"?


#4
Re: Operative & pre-advised LC's
Replying to [mikeo1313]:

I recommend http://experts.about.com/q/Distribution-Products-2127/
on this and similar issues relating to procedures and L/C usage.
#5
Re: Re: Operative & pre-advised LC's
Replying to [hexe2]:

They do exist, in a sense.

There is some misunderstanding floating around here.

Pre-Advice of an irrevocable LC can be issued, and sometimes is upon request.

It is a bank's decision to honor such a request.

It's operative status can be made contingent upon providing documentary conditions to the bank, whereupon it reverts, in a sense, to an active status.

It is NOT common, it IS misunderstood by many, but it is NOT "b.s." as one poster quite incorrectly stated. I mean this with all respect, proudly asserting an incorrect statement should be avoided.

Most of these types of questions could be cleared up by reading UCP 500, UCP 600, and then telephoning a couple of documentary credit departments at a couple of LARGE international merchant bank. MOST smaller banks, I've noticed, have very little clue about the basics of international documentary credits.
#6
Re: Operative & pre-advised LC's
Replying to [mikeo1313]:
I can only quote Article 11 of UCP 600:

'ARTICLE 11: TELETRANSMITTED AND PRE-ADVISED CREDITS AND AMENDMENTS
a. An authenticated teletransmission of a credit or amendment will be deemed to be the operative credit or amendment, and any subsequent mail confirmation shall be disregarded.

If a teletransmission states "full details to follow" (or words of similar effect), or states that the mail confirmation is to be the operative credit or amendment, then the teletransmission will not be deemed to be the operative credit or amendment. The issuing bank must then issue the operative credit or amendment without delay in terms not inconsistent with the teletransmission.

b. A preliminary advice of the issuance of a credit or amendment (“pre-advice”) shall only be sent if the issuing bank is prepared to issue the operative credit or amendment. An issuing bank that sends a pre-advice is irrevocably committed to issue the operative credit or amendment, without delay, in terms not inconsistent with the pre-advice. '

They are not B/S, as someone claimed. They are not extinct either! They are very much in use all over the world. Usually, a pre-advice is sent to satisfy the seller that a operative LC is on the way, to assure the exporter so that he can start production, to give him the credit number, date of issue and amount, so that the info can be used by the beneficiary somewhere (say, to obtain loans from his banker), and so on.

I suggest once again, PLEASE take the trouble to read the UCP and the ISBP at least once. Till one does that, it is better not to indulge in ill-informed or uninformed comments.

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