Mr Old Man Payment Q&A DRAFTS UNDER LETTERS OF CREDIT, CONFIRMATION, PART PAYMENTS UNDER DOCUMENTARY COLLECTIONS By Mr Old Man Posted on June 13, 2023 5 min read 2 1 2,137 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUESTION Hi Your blog is super helpful for a beginner like me. I have some doubt about drafts and confirmation on LC and collections. Could you please brief about Field 41a. There are 5 types of payment terms, how drafts are to be prepared, and the drawbacks and drawbacks of each payment term? BY ACCEPTANCE BY DEF PAYMENT BY MIXED PYMT BY NEGOTIATION BY PAYMENT Field 49 confirmation instructions there are 3 options and what will be the implications on draft each case? CONFIRM The requested confirmation party is requested to confirm the credit MAY ADD The requested confirmation party may add its confirmation to the credit WITHOUT No confirmation is requested. 3. Collection can we do in part by part payment? By submitting multiple drafts is it possible? Could you please elaborate on Transfer LC and Standby LC? Thanks in advance Sudheesh —– ANSWER Hi, Thank you for your high appreciation of my blog. However, I do not have much time to answer many questions at a time. So, one question at a time is always welcomed. It depends on the applicant’s application for issuing LC, LC issued may be available: + by payment with the issuing bank or the nominated bank or the confirming bank (if any) + by deferred payment with the issuing bank or the nominated bank or the confirming bank (if any) Note: No drafts are required under LC available by payment or deferred payment + by negotiation of sight drafts (or sometimes time drafts) with the nominated bank or the confirming bank + by acceptance of time drafts with the issuing bank or the nominated bank or the confirming bank (if any) Note: Drafts are required under LC available by negotiation or by acceptance + by mixed payment, e.g., 20% of LC value payable at sight as an advance payment against invoice 70% of LC value payable at sight against shipping documents required at Field 46A 10% of LC value payable against installation completion certificate issued by the beneficiary and counter-signed by the applicant whose signature will follow by mail. Field 49 specifies confirmation instructions which may include CONFIRM, MAY ADD and WITHOUT. + CONFIRM means the advising bank is requested to confirm the LC, while MAY ADD means the advising bank may confirm the LC if it agrees to and WITHOUT means the advising bank is not requested to add its confirmation to the LC. Assuming the LC is confirmed, there are following scenarios: Where the LC is available by payment or deferred payment, it is available with the confirming bank by payment at sight or incurring a deferred payment. Where the LC is available by negotiation, it is available the confirming bank by negotiation of drafts drawn on the issuing bank Where the LC is available by acceptance, it is available the confirming bank by acceptance of drafts drawn on the confirming bank. 3. Whether or not a documentary collection transaction can be paid in part payments depends on the collection instructions, e.g., the documents are released against payment of draft at sight for USD 50,000 and against acceptance of draft at 90 days after BLdate for USD 50,000. No time to answer Question 4. Best regards, Mr. Old Man
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?