When The Commission Rate Is Too High

[Herrick]

Hi Mr. Papa,

I have finished reading ITSI.  It's the best book on the topic I have ever read and appreciate your work.

In the case study showed in ITSI, there is a mention that if the commission rate is too high, the issuing bank may reimburse the advising bank.

I understand the the challenge can be mitigated, but keeping in mind that the bank does not get involved in matters of contract, how is the commission rate the bank's concern?

Thank you so much!

Best regards and Seasons Greetings,

JP

[Sprowle]

Dear JP

Thank you for the high praise- I do appreciate it .I am also grateful that you appreciate the efforts made to produce such works. lost a year working on that publication-

Don't cross over? Try always to always reset mind to home base. Home base - Contact is one matter . DLC terms and conditions is another. Bank also earn "commissions" in the form of  fee's . As one bank is often and agent of another. So  DLC is 100% correct everything is fine- legal action against  breach of contract for other issues between you and the principal(end buyer/ supplier)  may still prevail. like wise if I am speaking about bank and payments- matter of DLC a terms and conditions are the only matters banks are interested in- failure here is about Banking rules. They will react only to conditions of the DLC.

You commissions are earnings which dependent of the DLC going thorough as first applied. Hence you are always open to the threat of losing such or having such reduced. Hence any issue effecting the DLC issuance and collection  application  as it pertains to value may indeed cause your own commission left over to technically increase, decrease or vanish all together.

The main issue here is of amendments- if for instance a difficult supplier puts the value up on goods by 3 dollars even though he can't do that because the contract is signed  (Well?  What are you going  do- Sue Him? deal collapse?)

The best way is to simply appease him in getting the first delivery done , then raising concerns  of the price rise. The bank will only follow the DLC rules. So you lose $2.00 per Mt on c commissions- at least the deal is still viable.  A bank  will allow collection as per the terms of the DLC and its value. One way or another You and your supplier will only collect up that whole value . The DLC has a 5% -/+ tolerance application- if the value sill remain with the tolerance value you may still recover a good part of your 'earnings" . The last thing you also want is to formally apply  amendments-

So stick to the idea that banks have no part of the sales contract- the end buyer advises the bank his monetary payment needs, the banks then follows such as per the terms and conditions of the DLC and its supporting rules.

You job is to ensure YOU invoice values are correct(to your end buyer)  and - as it applies to the collection vale the supplier gets his selling price to you.

When you see an inquiry stating - "Bank needs to see contract" that's because the confused  end buyer may be getting a loan to finance a deal  in where the lending bank wants to see evidence of such a deal- Such has nothing to do with us.That loan is subject to bank lending policy.

So read that section in full content-  with the above see if the understanding comes to you.if not  ask me again quoting page number and chapter-

See how you go-

Regards

Davide Papa

www.smice.net

www.ftnexporting.com