ANOTHER QUESTION ABOUT THE CLAUSE “T.T REIMBURSEMENT ALLOWED”

QUESTION

Dear Mr. Old Man,

May I ask a few questions.

1) Why do issuing banks allow TT reimbursement? because I know China banks do not.

2) Where TT reimbursement is allowed and a reimbursing bank is nominated in LC, I understand it’s not common for the nominated bank to be informed upon LC issuance, am I right? In any case, how would the negotiating bank get reimbursed upon sending a swift to issuing bank on complying documents? As a nominated reimbursing bank, can I refuse payment when I received a corresponding swift from negotiating bank?

3) In what circumstances do issuing banks nominate banks other than itself as reimbursing banks?

4) How is the process flow for claiming TT reimbursement like?

5) What is the difference between authenticated swift and tested telex? Banks use it in tandem.

Hope it’s not too much for you.

Appreciate your response.
——

ANSWER

Dear Mich,

Too many to answer. But I’ll try.

1) It is true that not many banks are willing to issue LC with TT reimbursement allowed as the issuing bank must reimburse earlier than it does under LC without TT reimbursement clause. However, sometimes the issuing bank must accept such an uncomfortable clause, especially when the LC is a confirmed LC.

I see from my experience that a wise confirming bank would always insist on 😭 reimbursement clause as a prerequisite for it to add confirmation to the LC. The reason may be that the confirming bank must negotiate (purchase at a discount) without recourse if the documents are complying, hence, it expects to receive reimbursement from the issuing bank the sooner the better to avoid loss due to delayed reimbursement.

2) No. It is a common practice that when nominating a bank as a reimbursing bank under LC, the issuing bank would send the nominated reimbursing bank a reimbursement authorization stating (i) LC number; (ii) LC amount; (iii) claiming bank or, in the case of LC available with any bank, claims can be made by any bank; (iv) parties responsible for charges (claiming bank’s and reimbursing bank’s charges).

For further information about Bank to Bank Reimbursement Arrangement, please refer to UCP 600 Article 13 or URR 725.

If the LC allows 😭 reimbursement and if the documents presented to the negotiating bank are complying, the negotiating bank just send the issuing bank an authenticated swift message stating the documents are complying and the issuing bank will pay in accordance with its undertaking.

With regard to the question if the nominated bank can refuse payment, please refer to URR 725 – Article 11 quoted as below:

Quote

Processing a Reimbursement Claim

a. i. A reimbursing bank shall have a maximum of three banking days following the day of receipt of the reimbursement claim to process the claim. A reimbursement claim received outside banking hours will be deemed to be received on the next following banking day.
If a pre-debit notification is required by the issuing bank, this pre-debit notification period shall be in addition to the processing period mentioned above.
ii. If the reimbursing bank determines not to reimburse, either because of a non-conforming claim under a reimbursement undertaking or for any reason whatsoever under a reimbursement authorization, it shall give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, no later than the close of the third banking day following the day of receipt of the claim (plus any additional period mentioned in sub-article (i) above). Such notice shall be sent to the claiming bank and the issuing bank and, in the case of a reimbursement undertaking, it must state the reasons for non-payment of the claim

Unquote

3) I see that issuing banks that have their branches in abroad, e.g., in New York, would normally nominate such branches as reimbursing banks. This could be their own payment arrangement.

Also I see that sometimes a confirming bank only accepts to add confirmation to the LC if the issuing bank nominates a US reimbursing bank which must issue its reimbursement undertaking to the claiming bank (i.e., the confirming bank).

Banks that have no branches in New York would often nominate their correspondent banks where they maintain account as reimbursing bank.

4) See my answer no. 2.

5) Where banks maintain SWIFT RMA (Swift Relationship Management Application), an authenticated swift message is used. Where banks have test key arrangement and communicate by telex, a tested telex is used. Banks that have SWIFT RMA would agree to stop using tested telexes.

Best regards,
Mr. Old Man