Uncategorized LC AVAILABILITY By Mr Old Man Posted on March 13, 2010 6 min read 8 0 4,177 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr This article can also be viewed on www.letterofcreditforum.com QUERY FROM NEVILLE DCOSTAI need some clarification with regards to L/c Dear Sir I would like to know what is the difference between l/c available by Payment, available by Negotiation, available by Deferred payment and available by Negotiation. Regards, Neville Dcosta ———————-COMMENT Dear Neville Dcosta, As you may know, an LC may be stipulated available by payment, available by negotiation, available by acceptance or available by deferred payment. LC available by (sight) payment does not require sight drafts to be presented and normally the payment is to be effected at the counter of the issuing bank or at its nominated bank upon receipt of the complied documents. The beneficiary under LC available by payment normally may not obtain the payment in advance by negotiating (selling at a discount) the documents at his bank. Different from LC available by payment, LC available by negotiation allows the beneficiary to receive the payment by negotiating the sight drafts and documents at a nominated negotiating bank which is normally located in his country. The negotiation may be effected on a with or without recourse basis. However, under a confirmed LC, the confirming bank must negotiate the documents on without recourse basis. Acceptance LCs and deferred payment LCs are usance LCs. The difference is that the acceptance LC requires a time draft, whereas the deferred paymet LC does not. Under acceptance LC, the beneficiary may receive the payment before the draft is due by discounting the accepted draft at its bank or discounting it on forfaiting markets (as the accepted draft is a financial instrument which can be transferable). Under deferred payment LC, after his presentation of complied documents, the beneficiary receives a deferred payment undertaking incurred by the issuing bank or its nominated bank. Deferred payment undertaking is not largely accepted as a financial instrument, therefore, normally the beneficiary may not discount the deferred payment undertaking. However, in some cases, the beneficiary can use the deferred payment undertaking incurred by the issuing bank or nominated bank as a security for the advance given by his banks. UCP 500 was silent on negotiating/discounting deferred payment uindertakings. The dispute between Banco Santander and Banque Paribas in connection with the discounting of a deferred payment undertaking led to the change in UCP. Under UCP 600 Art. 12 (b), the nominated bank is allowed to purchase (buying at a discount) its own deferred payment undertaking. Hoping the matter has been clear. Best regards,Nguyen Huu Duc ———————–FRAMMI Very well explained!!!!! Just one thing: you will get banks to offer you a without recourse financing on basis of D/P credits after docs were taken up. Irrespective of the Santander-Paribas case which led to some confusion, "without recourse" never meant "we don't even ask back the money, if you have presented fraudulent docs". Without recourse financing always demands existing offers without any reserve and without any contestation. As a consequence they only cover political and del credere (credit) risks. Contractual inconsistences and disputes remain for the account of the beneficiary. -Each long journey starts with a small step- Best regards Frammi ——————–Neville Dcosta very good details I thank you for the details. It was very good peace of knowledge. Regards, Nevilledcosta …
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?