Is PSI Service useful for pre-purchasing assessment?

This article provides you with information regarding Pre-Shipment Inspection (PSI), a service that is offered by third party inspection organizations.

The vendors and purchasers utilize this service any time commodity items are purchased by using a letter of credit (LC), concerning the financial institutions of each party involved.

All of these goods will be examined independently, prior to transport, by the third party pre-shipment quality inspection agency. This is done to make sure correct marking, packing, quality, loading, and quantity criteria are fulfilled.

There are many types of documentation that will be brought to the seller’s financial institution to collect the purchase value. The items required will include: a certificate of origin, a bill of lading, a commodity certificate of inspection and a packing list.

The third party pre-shipment inspection corporate submits the inspection certificate to the vendor. After that, the seller will take this document, along with the others, and present it to the bank to complete the transfer of funds.

Mandatory inspection requirements may be placed in the LC, but whether they are followed or not is dependent on agreements established between the buyer and seller.

Here is an example to assist you in understanding pre-shipment inspection practices:

An oil company needs a gas turbine for its facility, so it makes a plan to order the design, procurement, construction and installation of this equipment. A contract is made with an engineering company to fulfill these demands. A letter of credit is then issued by the oil company’s bank to provide funds to the engineering company for its services and supplies.

A new contract will be signed between the engineering firm and a gas turbine vendor. Then a “transfer LC” will be requested from oil company’s bank to transfer LC from engineering company to gas turbine vendor. This LC will outline the details of the transaction as:

The applicant and consignee is oil company, the engineering company will receive the position of primary beneficiary, and the secondary beneficiary will be the turbine company.

The 46.A clause in the LC lists the required documentation for any payment to the seller. In this example, the gas turbine vendor must collect all required documents and take to the bank to receive its payments. One of these documents in this clause will be inspection certificate that must be issued by pre-shipment inspection agency. This is a sample wording for this requirement:

“The original certificate of inspection must be issued by third party pre-shipment inspection agency not earlier than the bill of lading date. And the inspection must be done by “the name of inspection company” and approving that:

“The quality, quantity, and the packing of the commodity dispatched are strongly conforming with provisions of the commodities stated in the associated proforma invoice, the terms of LC and any attachments built thereto as submitted to “name of third party pre-shipment inspection company” by the purchaser”

Remember that the clause 46.A lists many documents that are required to make a payment. The conformity certificate is merely one of these documents.

The paragraph with quotation mark needs to be mentioned in the inspection certificate. Even if there is a spelling errors in the original document must remain intact.

Any change from above wording will not be acceptable by bank and the fund will not be transferred and discrepancy will be announced.

The inspection body will make third party inspection in quality, quantity, packing and marking of the gas turbine. If the result of inspection was satisfactory, then the inspection agency will issue the inspection release note.

The manufacturer of the gas turbine then can order to a shipping company to ship gas turbine. But the gas turbine vendor should inform the inspection body for date of loading.

The third party inspection company must be attended during the loading of the gas turbine. The inspection body will submit the loading inspection visit report to the client.

The pre-shipment inspection agency will issue the inspection certificate when the gas turbine vendor sent them the following important documents: Bill of Lading, Certificate of Origin and Packing List

The pre-shipment inspection agency already has the purchase order, proforma invoice, and LC in their possession (they received these documents before inspection). Using these documents all together; the inspection body will issue the certificate and deliver to the gas turbine vendor.

Finally, the gas turbine vendor collects all documents alongside with the inspection certificate. Then will take these documents to its bank and receives its payment.

For more information you may refer to Pre-Shipment Testing Services . There are many articles that can assist you to handle your PSI job.