EARLY REIMBURSEMENT CLAIM

QUERY FROM THOMAS

I have a question.

We negotiated a credit which required us to first send an advice of negotiation to the issuing bank and then after three working days to claim reimbursement on the reimbursing bank.

We sent the reimbursement claim on the day of negotiation without sending an advice to issuing bank.

The issuing bank requests us to return the funds and then to reclaim the funds after three days.

What should we do ?

Should we simply pay them the interest for the three days that we received the funds in advance ?

Or shall we ask the reimbursing bank to back value the transaction by crediting the acccount of the issuing bank to the day of negotiation and then debiting the amount three days hence ?

Your advice would be much appreciated.

Usually we send the reimbursement claim at time of negotiation. Thus in this particular case, we made the mistake of not sending the reimbursement claim after three bank working days and to send an advice of negotiation to the issuing bank at the time of negotiation.

The reimbursing bank is Wachovia Bank, New York and both our bank and the issuing bank has an account with them.

We might have a problem with back valuing our account the same time as that of the issuing bank since that might cause an overdraft in our account. We would have to request back valuation of the issuing bank's account without touching our account.

The back valuation fee should be in this case U$200 processing fee plus the interest for three days at the fed funds rate which is 2.41% at present. At least this is what used to be the fee schedule in the past although I am not sure this still holds.

Usuallly giving the issuing bank the three days interest at the fed funds rate is better since that would obviate the need to pay the U$200 processing fee.

And actuallly this is the choice which is most often made.

With warmest regards,

Thomas

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RESPONSE TO CHANG-SOON THOMAS SONG'S QUERY
Subject: RE: early reimbursement claim

Dear Thomas,

I think you have your own answer to your query already.

I agree with you that a request for back value may cost your bank more money including back valuation fee plus the interest for three days at fed funds rate.

One more thing is that I am not sure the reimbursing bank is willing to process your request for back value. Please refer to URR 525 Article 11 (b) though your situation does not totally match with its provision.

So, what is the best choice? Please obtain an agreement that allows your bank to pay the issuing bank the interest for the three days that your bank received the funds in advance

Best regards,
Nguyen Huu Duc …