Does “Mail Advice of Negotiation” Delay Payment under the LC?

INTRO

Every now and then, someone spots a mysterious line in Field 78 of a letter of credit and starts to wonder if it hides a trap. One of those lines reads:

 “On receipt of mail advice of negotiation, we shall cover as per instruction received.”

Does that mean the issuing bank won’t pay until they receive such a “mail advice”? Let’s see what’s really behind this.

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QUESTION

Dear Mr. Old Man,

I am writing to seek your clarification of the following situation:

LC states:

• Field 41a: Available with any bank by negotiation
• Field 78: On receipt of mail advice of negotiation, we shall cover as per instruction received.

Does this mean that the payment will be made only on receipt of mail advice of negotiation?

Will the issuing bank refuse to honour if the presenting bank makes a complying presentation to the issuing bank without sending its mail advice of negotiation (as it does not negotiate the documents)?

Many thanks and best regards,

VT

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ANSWER

Dear VT,

When the documents are sent to the issuing bank, they are normally accompanied by a covering letter that provides the presenter’s instructions for payment or reimbursement.

If the documents have been negotiated, the presenter would state this in the covering letter and claim reimbursement from the issuing bank. This covering letter serves as the “mail advice of negotiation” referred to in the credit.

If the presenter does not negotiate the documents, the covering letter may simply state, for example:

“We hereby certify that the documents comply with the credit terms and conditions. Please remit the proceeds to our account with [Bank name], under advice to us.”

In both cases, as long as the presentation is complying, the issuing bank is obliged to honour the credit. The phrase in Field 78 does not mean that payment is conditional upon receiving a separate mail advice — it only refers to how the issuing bank will handle cover or reimbursement upon being advised of a negotiation.

I hope this clears up your concern.

Best regards,

Mr. Old Man