Letter of credit question?

Question

dear friends,

I have a very interesting question? I am about to open an LC to a supplier for 6 vessels of some goods. each shipment he makes and sends to necessary docs to the bank he will receive his payment but the supplier insist on a certain clause which is

he says the 1st shipments 40% of the invoice you will pay me without any conditions after 300 days .

to explain it better he wants me to open an LC for 6 shipments but he wants to guarantee the first shipments 40% value no matter what and as his explanation for this he says he is shipping the goods on FOB terms and this is the first time we do business and this good is only made for your reference and no other way to sell to anyone else so what if we change our minds and not send the vessels to the loading port so in that case what will he do.

we know that he is a geniun supplier but it is a big risk for us because even if he does not make any shipments he still will get the 40% of the first vessels money after 300 days.

my question is if they do not accept to find a solutuion for this payment terms and we have to accept these terms and take the risk. In a case like this happens and he does not make the first shipment is there a way that we can cancel the whole LC because there is a con or abuse.

thank you.

best regards

Baki Aktar

Answer 1

a supplier will never demand money in case of a mishap on their part. there is no merit to it, and thats how they lose customers. This sounds like a serious con

thats like saying a new car dealer can still charge you 40% of a car for them blowing it up before it gets delivered. impossible