CLARIFICATION ON PAYMENT INSTRUCTIONS IN COVERING SCHEDULE

QUESTION

Dear Mr. Old Man,

I hope you are doing well.

I have a small query regarding document presentation and payment instructions.

We are the beneficiary bank, acting as the Presenting Bank. The beneficiary submitted documents to us for forwarding to the nominated bank for negotiation, as the LC restricts negotiation to the nominated bank.

When forwarding the documents, we included a covering schedule stating that the documents were being sent without any obligation on our part. However, we did not provide payment instructions or specify how the beneficiary should receive the payment.

My questions are:

1. How will the beneficiary receive payment from the nominated bank in this case?

2. Should we have included payment instructions in our covering schedule?

There were internal disagreements on how to draft the covering schedule, and we ultimately sent the documents without specifying payment instructions. However, today the nominated bank contacted us, asking for clarification on how they should proceed with crediting the funds to the beneficiary.

Your guidance on this matter would be greatly appreciated.

Thanks & regards,

Deeptishree Shrestha

Trade Operation Center

Hiti Durbar Branch, Durbarmarg, Nepal

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ANSWER

Hi,

In addition to details such as the LC number, beneficiary’s name and address, bill amount, and a list of presented documents (including the number of originals and copies), the presenting bank’s covering schedule would always include clear instructions to the nominated or issuing bank regarding the handling of documents and payment.

Here are some examples of appropriate instructions based on different scenarios:

• For an LC available restrictedly with the nominated bank by negotiation:

“Please negotiate the documents and remit the proceeds to our bank account No. 123456789 with ABC Bank, New York under Swift advice to us, quoting our reference No….”

• For an LC available with the issuing bank, nominated bank, or confirming bank by payment:

“Please remit the proceeds to our bank account No. 123456789 with ABC Bank, New York under Swift advice to us, quoting our reference No….”

• For an LC available with the issuing bank, nominated bank, or confirming bank by acceptance/deferred payment:

“Please confirm under authenticated Swift message your acceptance and the maturity date. Please remit the proceeds to our bank account No. 123456789 with ABC Bank, New York at maturity under Swift advice to us, quoting our reference No….”

• For documents containing discrepancies:

The presenting bank may forward the documents to the issuing bank for payment without stating the discrepancies or may seek approval from the issuing bank for payment. In such cases, the covering schedule may include instructions such as:

“The documents are presented to your bank on an approval basis. Please remit the proceeds to our bank account No. 123456789 with ABC Bank, New York under Swift advice to us, quoting our reference No….”

In summary, a covering schedule must always include clear payment instructions. Even if the beneficiary requests the issuing bank to release documents to the applicant without payment, the presenting bank should explicitly state this in the covering schedule.

If a covering schedule lacks clear instructions on document handling and payment, the nominated or issuing bank may contact the presenting bank for clarification or even return the documents.

Best regards,

Mr. Old Man