Mr Old Man Payment Q&A On Approval Basis – When the Decision Is Left to the Issuing Bank By Mr Old Man Posted on 3 weeks ago 3 min read 1 0 35 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr In day-to-day LC work, not every presentation arrives with confidence and clean lines. Sometimes, the nominated bank steps back a little and sends the documents forward “on approval basis”—a small phrase, but one that shifts the practical dynamics quite a bit. What exactly does it mean, and how should the issuing bank respond? Question Dear Mr. Old Man, Hope you are keeping well. We as issuing bank have received documents under a letter of credit on “approval basis” by the nominated bank. Please help me understand: What does “on approval basis” mean in an LC context? What practical steps should the issuing bank take? Your prompt guidance is highly appreciated. Best regards, Ziyad _______ Answer Dear Ziyad, “On approval basis” is not a term in UCP 600. It is only a banking expression. It means the nominated bank does not pay or negotiate the documents. The documents are sent to the issuing bank for its decision, and the nominated bank will act only upon the issuing bank’s approval. In many cases, the documents have discrepancies. But not always. Sometimes the bank is just being cautious. For the issuing bank, the steps are: Examine the documents Check the documents based on the LC terms and UCP 600. Do not rely only on the nominated bank’s statement of discrepancies. Make your own decision If documents comply, you must honour. If documents do not comply, you may refuse under Article 16 of UCP 600. If you ask the applicant for approval List all discrepancies. Include both: discrepancies from the nominated bank discrepancies found by your bank If you refuse Follow Article 16 strictly (time, notice, discrepancies). In short: “On approval basis” does not change your responsibility. You must still examine and decide. Best regards, Mr. Old Man