Instalment Drawings or Shipments
Clause: “If a drawing or shipment by instalments within given periods is stipulated in the credit and any instalment is not drawn or shipped within the period allowed for that instalment, the credit ceases to be available for that and any subsequent instalment.”
Explanation: This clause indicates that if a letter of credit requires shipments or drawings to be made in specific instalments within defined periods, the failure to meet the deadline for any one instalment results in the cancellation of the entire credit for that and all future instalments. In essence, missing a single instalment deadline nullifies the credit’s availability for any further instalments, even if they are within their specified periods.
Example: A buyer opens a letter of credit (L/C) requiring a seller to ship 1000 units of goods in three instalments as follows:
- 1st instalment: 300 units to be shipped by January 31.
- 2nd instalment: 300 units to be shipped by February 28.
- 3rd instalment: 400 units to be shipped by March 31.
If the seller fails to ship the 300 units by January 31, the credit will no longer be available for the February and March shipments. The entire L/C becomes void due to the failure to comply with the shipment schedule stipulated for the first instalment.
Clause-by-Clause Explanation and Examples
Clause: “If a drawing or shipment by instalments within given periods is stipulated in the credit…”
Explanation: The letter of credit specifies that shipments or drawings must occur in predetermined instalments over set periods.
Example: A letter of credit outlines that a supplier must ship 500 units of goods in two instalments:
- 1st instalment: 250 units by July 31.
- 2nd instalment: 250 units by August 31.
Clause: “…and any instalment is not drawn or shipped within the period allowed for that instalment…”
Explanation: If the shipment or drawing for any instalment is not completed within the stipulated timeframe, it means the seller has failed to meet the conditions for that instalment.
Example: If the supplier ships only 200 units by July 31 instead of the required 250 units, they have not met the conditions for the first instalment.
Clause: “…the credit ceases to be available for that and any subsequent instalment.”
Explanation: Failing to meet the timeframe for any instalment results in the termination of the letter of credit for both the current and all future instalments.
Example: Due to the failure to ship the required 250 units by July 31, the entire L/C is void. Consequently, the supplier cannot use the L/C for the August shipment of 250 units, rendering the credit invalid for any remaining instalments.