LC AVAILABLE BY NEGOTIATION

A QUERY FROM LETTER OF CREDIT FORUM

Our bank is doing a lot of mistakes I think.

They always open LCs for any tenor at sight only by Negotiation only, I have never seen an LC opened at Sight By payment!!! I think they are using the saved templates in the swift ^^.

Usually customer here when then say we want an LC at sight, we use automatically By negotiation, maybe customer arranged with the beneficiary to open LC by payment.

How can I clear this doubt guys, i need a rule to follow for these problems.

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ANSWER FROM MR. OLD MAN

available by negotiation v. available by payment

Hi,

The fact that L/C is issued available by negotiation or by payment depends on one of the following:

(1) The beneficiary’s request
(2) The applicant’s L/C application
(3) The issuing bank’s practice

A wise beneficiary always wants to receive negotiation L/C as with this type of L/C he can obtain the payment in advance right after shipment by negotiation of the documents and/or drafts with the negotiating bank that is normally located in his country. Especially, in this tough times when the global banking industry has remained in continued turmoil, if the negotiation is made on a without recourse basis, it is obvious that the beneficiary can avoid risks of non payment in connection with the issuing bank’s ability to pay or the issuing bank’s country’s restrictions on payment of foreign debts.

If L/C is available with the issuing bank by (sight)payment, the beneficiary may not have the same benefits as above as the issuing bank does not authorize any other bank to negotiate L/C. Therefore, if receiving a payment L/C, the beneficiary may insist on an amendment.

It is true that some banks normally issue negotiation L/C just because of their habit or practice even though in the application for opening L/C the applicant does not indicate clearly the type of L/C, i.e. available by negotiation or by payment.

You may further refer to the other posts in the forum dealing the same topic by clicking the following path: http://letterofcreditforum.com/content/quare-regards-letter-credit or just searching the same topics with key words such as “type of LC” or “availability of LC” or the like.

Best regards,
Nguyen Huu Duc …