DOCUMENTS SENT ON COLLECTION BASIS

QUESTION

Dear Mr. Old Man,

I got your email ID from internet.
We have made the shipment; based on Irrevocable Sight L/C. And prepared the documents according to the L/C terms and submitted in our bank. Our correspondent bank couriered the documents to consignee’s bank on collection basis.

Today is the 6th day, since the documents have already reached the consignee’s bank. The consignee has received “arrival advice of the documents” from his bank, today. Consignee also told us that the documents are ok.

Now, is it possible that consignee still doesn’t visit his bank to collect the documents and doesn’t make the payment in his bank?

What would be of our payment?

Looking forward to your expert guidance,

Shams
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ANSWER

Dear Shams,

I am not sure I understand your case exactly. I wonder why the documents made according to the L/C terms were sent to the consignee’s bank on collection basis. I guess that the documents presented were not complying; hence, your bank sent them to the issuing bank on approval.

Please note that banks would employ the terms such as “documents sent on collection basis” and “documents sent on approval” when sending DISCREPANT documents to the issuing bank. The term “documents sent on collection basis” may lead to misunderstanding that this is a documentary collection under URC 522.

Please check with your bank to determine whether the documents for payment under UCP 600 or for collection subject to URC 522.

If the documents were sent to the issuing bank for payment under UCP 600, the issuing bank must honour if the documents presented constituted a complying presentation. If the documents were found to contain discrepancies and the issuing bank must give a single notice of refusal by telecommunication no later than the fifth banking day following the day of presentation. If the issuing bank fails to give notice of refusal within five banking days following the day of presentation, it shall be precluded from claiming that the documents do not constitute a complying presentation.

The issuing bank must also act in accordance with Article 16 even when the documents are sent on approval under UCP 600.

If the documents were sent for collection under URC 522, the transaction will be handled in accordance with URC 522 whereby the issuing bank acts as the collecting bank. and the buyer (drawee) would take up the documents when the goods have arrived at the destination. So, it may take longer time for the beneficiary to receive the payment.
So, again, please check with your bank if the documents presented were complying with the L/C terms and conditions and if they were sent to the issuing bank for payment under UCP 600. If this is the case the issuing bank must honour.

Please also note that the issuing bank has a maximum of five banking days from the day of receiving the documents to determine if they are complying and one or two banking days to arrange payment if the documents are complying.
It’s just the 6th day not the sixth banking day, hence, be patient. If needed, please ask your bank to contact the issuing bank for the status of the documents.

Hoping it is helpful.

Best regards,

Mr. Old Man
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QUERY FROM SHAMS

Dear Sir,

It’s really nice to find your reply. Yes, your answer is very much helpful for me. Thank you.
Yes, the “Applicable rules are UCP Latest Version”.

My bank had pointed out following discrepancies:

• I prepared the documents (Invoice, Packing List, Certificate of Origin, etc.), 1 Original & 3 photo copies of each… as Documents required in L/C were “1 Original & 3 Copies”. My bank pointed out that there should be clearly written or stamped; which is Original & which are Copy.

• B/L shows the weight in “Kgs” instead of “Tons”. i.e, L/C required the quantity of the material to be shipped: “52 Tons”. While, the B/L shows the quantity of material “52,000.00 Kg.”.

I tried to argue my bank that 52,000 Kgs = 52 Tons. But my bank declared it as a DISCREPANCY. Later, my bank described me that they (my bank or any bank) tries their level best, NOT to purchase the documents; anyway. As, there always remain chances that exporter’s bank doesn’t find any discrepancy while examining the documents. But later; consignee’s bank points out some discrepancy, which wasn’t realized by exporter’s bank. Thus, exporter’s bank always wants to send the documents of collection basis only. Is it true?
&
Is it the sole discretion of the (exporter’s) bank whether to purchase/discount or not, the documents of L/C; even if the presented documents would be 100% in accordance with L/C terms & conditions?

Looking forward to your kind guidance, again.

Thanking you in anticipation,

Shams
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ANSWER

Dear Shams

1) I cannot say whether the discrepancies raised by your bank and the issuing bank are valid or not if I do not see the documents.

2) It is NOT true that the beneficiary’s bank always wants to send the discrepant documents to the issuing bank on collection basis which is subject to URC 522. Discrepant documents can be sent on approval under UCP 600.

I see from my experience that notwithstanding discrepancies, most banks would forward the documents to the issuing bank for payment under UCP 600. They even do not mention any discrepancy in the covering letter.

3) Regarding purchase/discount of documents (which is called “negotiation” under UCP 600), it is true that the exporter’s bank (which is not a confirming bank) is not obliged to purchase the documents (notwithstanding that the documents presented are 100% complying), except when it expressly agrees to so communicates to the beneficiary.

Please refer to sub-article 12(a) which says “Unless a nominated bank is the confirming bank, an authorization to honour or negotiate does not impose any obligation on that nominated bank to honour or negotiate, except when expressly agreed to by that nominated bank and so communicated to the beneficiary”.

Best regards,

Mr. Old Man