Overdue Interest is applicable for the period after due date on which payment of principal and interest is payable to the buyers credit bank. Some banks have been clearly stating these charges in their offer letter or in letter of undertaking format. Once the buyers credit get overdue, they have been raising demand for overdue interest / charges on lou issuing bank. While giving letter of undertaking (LOU), lou issuing bank gives unconditional undertaking than they would make the payment on due date, irrespective of importer’s ability to make the payment and incase of delay would pay over due charges. Thus are under obligation to make such payments.
Reasons for Delayed Payment
- Error by Importer’s Bank: Importer’s bank made payment not as per the instruction provide mt799 to Buyers Credit bank. Thus, resulting into non receipt of funds. Recently an importer had to pay $900 to buyers credit bank because of this issue which resulted in 5 days delayed receipt of funds.
- Non payment by Importer’s Bank on Due Date: This can be because of missing to pay on the due date, rollover taken from other bank for existing buyers credit but funds for the same has not been received and any other such reasons.
- Delayed Payment by Importer: Delay in funding of account by importer for payment to be made on due date.
Overdue interest as mentioned in offer letter / lou of few banks, for example are:
- Overdue interest 2.5% pa over and above applicable rate
- Interest for delayed period @US prime + 3% & Late payment fee of $100
- USD prime rate + 2% + $500 late payment charges + $100 swift charges per message
- 7.5% p.a. for overdue period plus any other charges
- Delay repayment attracts penal interest at bank’s prime rate + 2% in addition to penal charges of USD 200
- 3% over and above existing rate
Importer should make take utmost care that payment of buyers credit is made on due date to avoid any of these charges. If possible also get an MT202 copy shared with the buyers credit consultant to further share with Buyers Credit Bank. This would help in finding error if any at the earliest, to avoid such charges.
As with the case of prepayment, there is no specific mention of overdue charges incase of Trade Credit made in Master Circular of External Commercial Borrowing and Trade Credit. Thus, inference has to be derived from other circulars
- Master Circular on Import of Goods and Services. C.2. Interest on Import Bills. AD – Category – I bank may allow payment of interest on usance bills or overdue interest for a period of less than three years from the date of shipment at the rate prescribed for trade credit from time to time.
- Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers: Dated: 19-09-2016
- RBI Master Direction – Import of Goods and Services: Dated: 31-03-2016