BILLS OF EXCHANGE IN DOCUMENTARY COLLECTIONS AND IN LC AVAILABLE BY PAYMENT

Hoi An Ancient City, Vietnam

QUESTION

Dear Mr. Old Man,

I really need your kind help in the following matters.

1. Documents presented for collection do not contain bills of exchange or other financial documents.

The collection schedule (not mention any tenor) states as follows:

+  Maturity date: 30 OCT 2016

+  Delivery against acceptance.

Must documents presented for collection contain financial documents such as bills of exchange? Under D/A transactions, the drawee will accept the bills of exchange by signing on them. What if the D/A documents do not contain bills of exchange?

2. According to URC522, art. 7a, collections should not contain bills of exchange payable at a future date with instructions that commercial documents are to be delivered against payment.

I understand art. 7a that in D/P collection, documents should not contain bills of exchange. However, when reading art 7b, I am so confused when it states that if a collection documents contain a bill of exchange, the collection instruction should state whether the documents are to be released to the drawee against acceptance (D/A) or against payment (D/P).

So, it is inconsistent with my understanding of art 7a?

3. I read many of your articles and understand that LCs available by payment do not require presentation of drafts. However, I come across a confirmed LC available by payment stating as follows:

41A (Available With… By…): BY PAYMENT AT BANK A

Drawee: 42a  (Drawee): BANK A

I wonder why drafts are required under LC available by payment!

Please kindly clarify.

Thank you so much!

Best regards,

Chippink

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ANSWER

Hi,

1) Documentary collections not including bills of exchange

It is agreed that documentary collections would include commercial documents and financial documents, i.e., bills of exchange. However, documentary collections may not include financial documents (see sub-article 2 (d) URC 522).

Please also note that documentary collections are not restricted to D/P and D/A only. There are various types of document collections where the collecting bank is instructed to deliver the documents on other terms and conditions, e.g., delivery of documents against letter of undertaking to pay.

As far as I know, importers (drawees) in some countries insist on delivery of documents against letter of undertaking to pay at a future date instead of against bills of exchange. The purpose of this type is to save drawees from paying stamp costs.

The case in question is similar to the case where the documents are delivered against letter of undertaking to pay at a future date. The collecting bank may deliver the documents to the drawee upon receipt from the drawee of a letter of acceptance or a similar written undertaking, in which the drawee accepts to pay the bill at maturity date, i.e., 30 October, 2016.

2) URC 522 sub-article 7 (a)

It is practice that D/P collections should include SIGHT bills of exchange and D/A collections should include USANCE bills of exchange, i.e., bills of exchange payable at a future date. This is what sub-article 7(a) means.

3) Drafts under LC available by payment

It should be agreed that LC available by payment does not require the presentation of drafts. Therefore, LC available by payment would not include Field 42C (Drafts at…) and Field 42a (Drawee).

In your case, the beneficiary may or may not present drafts drawn on Bank A. Bank A cannot refuse to honour just because the presented documents do not include drafts.

Kind regards,

Mr. Old Man