LC AVAILABLE BY NEGOTIATION VS LC AVAILABLE BY PAYMENT

QUESTION

Dear Mr. Old Man,

It is very common that we see the LC available with “any bank” or name and address of a bank by negotiation.

Today, I received a LC available with any bank in India by “Payment”

What does it mean? How it works? Is it beneficial for beneficiary?

Request you all to throw light in detail.

Urgent please.

A.
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ANSWER

Hi,

An LC available by negotiation allows the beneficiary to receive the payment by negotiating the drafts and documents at a nominated negotiating bank which is normally located in his country. The negotiation may be made on a with or without recourse basis. However, under a confirmed LC, the confirming bank must negotiate the documents on without recourse basis.

Different from the LC available by negotiation, an LC available by (sight) payment does not require drafts to be presented and normally the payment is to be effected at the counter of the issuing bank or at a named nominated paying bank upon receipt of the complied documents. If an LC is available by payment at the issuing bank or at a named nominated paying bank which is outside the beneficiary’s country, the beneficiary cannot obtain the payment in advance by negotiating (selling at a discount) the documents at his bank.

LC available with ANY BANK by negotiation is common but LC available with ANY BANK by payment as in your description is not common at all (though “any bank” as per Article 2 is understood as a nominated bank).

From my experience, if LC is available by payment with ANY BANK, this “ANY BANK” rarely agrees to pay the documents but would normally act as a presenting bank that exams and forwards the documents to the issuing bank for payment.

It is obvious that a wise beneficiary would prefer an LC available by negotiation to an LC available by payment unless the LC by payment is available with the confirming paying bank which is in the beneficiary’s domicile.

Best regards,

Mr. Old Man