Five Banking Days — and When to Pay

INTRO

Everyone in trade finance knows the famous “five banking days” rule under UCP 600 — but confusion often arises about what happens after those five days. If the bank finds the documents complying, must it pay right away? Or can it wait until the fifth day (or even later) to release the funds?

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QUESTION

Dear Mr. Old Man,

Under UCP 600, a bank has up to five banking days after the day of presentation to determine whether the documents comply.

Suppose the issuing bank decides on Day 1 that the presentation is complying and releases the documents to the applicant (who has provided sufficient funds or a promissory note). Is it reasonable for the bank to delay payment until the fifth day, or must payment be made right away?

Similarly, if the documents are discrepant but the applicant accepts the discrepancies and takes up the documents, can the issuing bank wait until the fifth day after such acceptance to pay?

In our bank, all LCs are financed, and some applicants ask to postpone payment until the fifth day so they can avoid interest charges, even though they already have the documents to take delivery of goods. I believe this is an unreasonable delay but could not find any explicit rule in UCP 600 or ISBP 821 to support my view.

Could you please clarify and provide a stronger basis for this argument?

Thank you very much.

TL

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ANSWER

Dear TL,

Your question highlights a common misunderstanding about the five-banking-day rule in UCP 600.

Article 14(b) gives a nominated, confirming, or issuing bank up to five banking days after the day of presentation to determine whether the documents comply. If they do not, a notice of refusal must be sent within that period.

However, this provision relates only to the time allowed for examination, not to when payment must be made.

Article 15(a) states:

“When an issuing bank determines that a presentation is complying, it must honour.”

The key word is “when.” It doesn’t mean immediately, but it signals that the process of honouring must begin once compliance is determined. In practice, completing payment may take some time—often from an hour to a day—depending on workflow, time of day, or settlement procedures. Thus, payment can occur after the five-banking-day period—on the sixth or even the seventh banking day—without breaching UCP 600.

That said, deliberately delaying payment for the applicant’s convenience, such as postponing a loan drawdown, is not justified by UCP. Once compliance is established and the applicant has provided cover or a promissory note, the issuing bank should proceed to honour without undue delay, even if that means before the fifth day.

I hope this clarification helps strengthen your position.

Kind regards,

Mr. Old Man