PAYMENT WITHOUT DOCUMENTS

QUESTION

Hi Mr. Old Man,

I have a few questions about transferable LC again.

1. In the event that a seller fails to submit a required document as specified in the LC but the buyer doesn’t mind and asks the bank to disburse the payment, would the issuing bank typically proceed as instructed or would the bank insist that the document should be provided?
2. Compared to a standard LC, do transferable LCs generally take up more time for the disbursement of the payment considering there are more parties involved in the transaction?

Thank you!

Genevieve

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ANSWER

Hi,

1. According to UCP 600 Article 7, the issuing bank must pay if the stipulated documents presented to the nominated bank or to the issuing bank constitute a complying presentation. Therefore, the issuing bank would not pay if no presentation is made notwithstanding that the applicant has funds available and instructs the issuing bank to pay.

What if money laundering is involved, i.e., payment while no shipment is delivered?

2. If the transferable LC is transferred to the second beneficiary, the second beneficiary would not receive the payment upon presentation of complying documents to the transferring bank but only after the first beneficiary’s receipt of the payment from the issuing bank.

The first beneficiary when transferring the LC often curtails the latest shipment date and the period for presentation specified the original LC to ensure that he can receive payment as expected.

Best regards,

Mr. Old Man