Article-30-UCP-600-Tolerance in Credit Amount, Quantity and Unit Prices

Field “39a” Percentage Credit Amount Tolerance is a field in MT 700 swift message type that is used to specify the tolerance relative to the documentary credit amount as a percentage plus and/or minus that amount. This is an optional field. 

Article 30 provides three basic rules in relation to the application of a tolerance, whether mentioned in the documentary credit or not.

Article-30-UCP-600-Tolerance in Credit Amount, Quantity and Unit Prices

a. The words "about" or "approximately" used in connection with the amount of the credit or the quantity or the unit price stated in the credit are to be construed as allowing a tolerance not to exceed 10% more or 10% less than the amount, the quantity or the unit price to which they refer.

Terms such as ‘about’ or ‘approximately’ that are stated in relation to the credit amount or quantity of the goods or any unit price will allow a tolerance of 10% more or 10% less. A tolerance must state against each criteria to which it is to be applied, ie the amount, quantity or unit price. For an MT700 message, a tolerance in respect of the amount will normally be shown in field 39A (Percentage Credit Amount Tolerance) and a tolerance in respect of the quantity of the goods and/or unit price will be shown in field 45A (Description of Goods and/or Services).

Example: A credit shown field 32b as “about USD 10,000," which means that a presentation may vary between USD 9,000 to USD 11,000 in total.

b. A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed, provided the credit does not state the quantity in terms of a stipulated number of packing units or individual items and the total amount of the drawings does not exceed the amount of the credit.

Even if not stated in the documentary credit, where the quantity of goods is given in terms other than a stipulated number of packing units (eg 300 cartons of pens) or individual items (eg 20 laptop computers), a tolerance of 5% more or 5% less will be permitted provided the amount drawn does not exceed the documentary credit amount. The quantities for which this tolerance will be applicable would include those shown in terms of metric tonnes, kilograms, etc.

Example: Field 45a of a credit shown “1000 MT wheat”, where in field 32b States USD 400,000, it means that even if credit does not stipulate anything regarding tolerance, an automatic tolerance of %5+- will be applicable on the quantity of the goods and the shipped quantity may vary between 950 to 1050 MT , however, the value should not be more than USD 400,000.

c. Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the credit is allowed, provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not reduced or that sub-article 30 (b) is not applicable. This tolerance does not apply when the credit stipulates a specific tolerance or uses the expressions referred to in sub-article 30 (a).

A tolerance of 5% less than the amount of the drawing is permissible, Provided that the credit prohibits partial shipments and that the entire quantity covered by the credit has been shipped. The purpose of this provision is to ensure that a reduction in, for instance, the cost of freight or the insurance premium does not prevent the honouring of documents under the credit.

It covers the situation where the incoterms are CFR or CIF and the price quotation is based on a hypothetical or soft quotation on the insurance premium and/or the freight charges. Upon presentation of the documents, the beneficiary invoices for the actual insurance and freight costs, which conceivably are less than those quoted originally in the purchase order. Therefore, a 5% tolerance is allowed in the beneficiary’s invoice, always provided that the quantity of the goods, if stipulated in the credit, is shipped in full, and a unit price, if stipulated in the credit, is not reduced.

Example:

Credit Amount: Not exceeding USD150,000, Goods: 10 Cars, Unit Price: USD12,000 Per Unit, Delivery Term: CFR Mundra Port, India, Freight Charges: Not Exceeding USD30,000, Partial Shipment: Not allowed.

Invoice Presented: Goods: 10 Cars, Unit Price: USD12,000/Unit, Freight Charges: USD23,000, Total Invoice Amount: USD143,000 Mundra Port, India

Here the claim for USD143,000 is acceptable which is 5% less than the actual value, freight is deducted which was undecided but quantity and unit price remain same. 

The concept of tolerance is to avoid the unnecessary discrepancies which may be a due to big bulk shipment, crude oil shipment etc., wherein a minimal part of goods may be here and there while transshipment or loading and unloading, however, a credit application may be checked carefully while issuing it with bank regulations, money laundering perspective which may lead to over/under shipment.