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DISCOUNTING VS NEGOTIATION

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QUESTION

What is the difference between discounting and negotiation? Please clarify.

MK

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ANSWER

Hi,

With regard to the purchase of drafts and/or documents presented under LCs, UCP 600 does not use the term “discounting” but the term “negotiation” which means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.

However, in practice the terms “discounting” and “negotiation” would be used interchangeably without causing any misunderstanding.

I see that LC experts in their articles would use the term “discounting” to mean the negotiation by the nominated bank of usance drafts or deferred payment undertakings which have been accepted or incurred by the nominated bank itself.

My above answer is restricted to negotiation/discounting of drafts and/or documents presented under LCs only.

Kind regards,

Mr. Old Man

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One Comment

  1. phongcachsophie

    May 27, 2015 at 3:48 pm

    Dear Mr Old man,
    Pls help me clarify the 3 below cases:
    1/ The beneficiary wants the l/c to be added the clause “negotiation of the letter of credit with other copy documents (cert of origin, phytosanitary cert, and fumigation cert) except draft, commercial invoice, b/l, p/l acceptable. In case of credit is negotiated using copy documents, the original documents (cert origin, phytosanitary certificate, fumigation certificate) and copy of draft, invoice, b/l, p/l must be couried to the applicant”.
    Is this clause risky to the applicant and the issuing bank ? If yes, in what extends?
    2/ L/C states: B/L must show name, address and tel/fax no. of shipping agent in Vietnam.
    The original B/L presented show shipping agent in Singapore i/o in Vietnam. Is this discrepancy?
    3/ Letter of credit covers shipment of goods A,B and C. Partial shipment allowed. Presentation of invoice for goods A and B while bill of lading shows a description of goods as A,B and C.
    Is this discrepancy?
    .
    I am very confused about these cases. Look forward to hearing from you soon.
    Best regards,

    Reply

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