Cable Negotiation Explained: Benefits, Risks, and Practical Reality under LCs

Intro

In LC practice, the term “cable negotiation” is sometimes mentioned by beneficiaries and banks, even though it does not appear in UCP 600. This Q&A clarifies what “cable negotiation” means in practice, how it works, and the benefits and risks involved for each party when discrepant documents are presented.

QUESTION

Dear Mr. Old Man,

My name is HY. I work for a Japanese trading company in Vietnam and am currently facing some LC-related issues. I would appreciate your expert view on the following scenario:

• The beneficiary presents documents to the nominated bank in Singapore for negotiation.
• The nominated bank finds some discrepancies and refuses to negotiate unless the issuing bank waives them.
• The beneficiary does not want the nominated bank to forward the documents to the issuing bank, but instead requests the nominated bank to send a SWIFT message asking for a waiver of discrepancies.
• The applicant is informed but refuses to consider any waiver until the issuing bank examines the physical original documents.

I would appreciate your clarification on the following points:

1. The beneficiary refers to this as a form of “cable negotiation”. What is the nature of “cable negotiation”?
2. If the beneficiary insists on “cable negotiation”, what are the benefits and risks involved?
3. Is the applicant’s request reasonable?
4. If the applicant accepts the SWIFT message, can the Singapore bank send the documents? What if the applicant does not accept it?
5. If the applicant accepts the SWIFT message, what happens if further discrepancies are found when the documents arrive at the issuing bank?

At present, both parties are firm in their positions. As I do not fully understand the underlying issues, I am unable to propose a solution. I would greatly appreciate your advice.

Best regards,

HY

_________

ANSWER

Dear HY,

Thank you for your questions. I will respond briefly to each point.

1. What is “cable negotiation”?

UCP 600 defines negotiation but does not define “cable negotiation”.

In older banking practice, “cable negotiation” was a commonly used term to describe a situation where the nominated bank negotiates documents only after receiving the issuing bank’s authorization or waiver of discrepancies by cable (today, by authenticated SWIFT message), rather than waiting for the issuing bank’s examination of the original documents.

In practice, this usually involves the following steps:

• The nominated bank sends a SWIFT message to the issuing bank identifying the discrepancies and requesting waiver and authorization to negotiate.
• Upon receipt of the issuing bank’s authorization/waiver, the nominated bank negotiates the documents at the beneficiary’s request.
• The nominated bank then forwards the documents to the issuing bank for reimbursement.

Practical note:

As “cable negotiation” is not a term defined under UCP 600, its use is not recommended in formal communication, as it may cause misunderstanding or unrealistic expectations among the parties. It is preferable to clearly describe the actual process involved—namely, negotiation upon receipt of the issuing bank’s authorization or waiver by SWIFT.

The issuing bank’s authorization to negotiate by SWIFT does not constitute acceptance of the documents, nor a waiver of discrepancies beyond those expressly stated.

For clarity, it is preferable to avoid the term “cable negotiation” and instead use expressions such as “negotiation upon receipt of the issuing bank’s authorization by SWIFT”.

     2. What are the benefits and risks for the beneficiary?

Benefits:

• Under so-called cable negotiation, the beneficiary may receive payment earlier than in the case where discrepant documents are first forwarded to the issuing bank for examination and waiver.
• It is relatively safer for the beneficiary than sending discrepant documents directly to the issuing bank, which may refuse them outright.

Risks:

• If additional discrepancies exist beyond those waived, and such discrepancies are not accepted by the applicant or issuing bank, the beneficiary may be forced to:
  • accept a discounted payment, or
  • find another buyer, or
  • arrange for the return or disposal of the goods.

Any of these outcomes may result in significant financial loss to the beneficiary.

      3. Is the applicant’s request reasonable?

Yes. The applicant’s position is consistent with UCP 600.

In practice, many applicants prefer to decide on waiver only after the issuing bank has examined the original documents. In declining markets, this position may also be used as leverage to renegotiate price or to refuse the documents.

4. If the applicant accepts the SWIFT message, can the Singapore bank send the documents? What if it is not accepted?

More precisely, if the issuing bank accepts the waiver request by SWIFT, the nominated bank may negotiate (or discount) the documents and send them to the issuing bank for reimbursement.

If the issuing bank/applicant does not waive the discrepancies, it is for the beneficiary to decide whether to send the documents to the issuing bank, and in what form—such as on a collection basis subject to URC 522, on approval basis, or otherwise.

5. What happens if additional discrepancies are found upon examination by the issuing bank?

The issuing bank reserves the right to refuse the documents if new discrepancies are found.

Please also note that the issuing bank may refuse the documents even if the applicant is willing to accept those discrepancies.

I hope the above clarifies the issues.

Best regards,

Mr. Old Man