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TRUST RECEIPT

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QUESTION

Dear Mr. Old Man,

We presented via our bank one set of documents under an LC at sight to the issuing bank for payment. Since having not received the payment, we contacted the importer and were informed that they were applying for Trust Receipt.

What is Trust Receipt? Why must the importer apply for Trust Receipt?

Thank you

LC

————

ANSWER

Dear LC,

Trust Receipt is a type of short-term loan which the bank gives to the importer to settle the goods imported under letter of credit or under collection transaction where the title of the goods is held by the bank.

When the transport documents are sent to the bank, the importer will submit to the bank Trust Receipt Application in which the importer undertakes:

+ to acknowledge the issuing bank’s interest in the goods

+ to hold the goods in trust for the bank

+ to have the goods insured with the bank as the beneficiary.

+ to hold any sales proceeds in trust for the bank

If the bank approves the Trust Receipt Application, it pays the exporter/beneficiary  and releases the documents to the importer to enable the importer to take delivery of the goods. The importer sells the goods on the behalf of the bank and uses the proceeds to pay off the loan.

Under letter of credit transaction  (as in your case), Trust Receipt facility is a financing arrangement between the issuing bank and the importer/applicant. There is no need for you (the beneficiary) to care about Trust Receipt because the issuing bank must pay if the documents presented are complying notwithstanding whether the importer has applied for Trust Receipt or not.

Kind regards,

Mr. Old Man

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4 Comments

  1. Abdul Raheem

    November 25, 2015 at 2:44 pm

    Dear Mr. Old Man

    I have been visiting your blog frequently ever since I came to know about the blog and am very thankful to you for sharing your knowledge with others.

    Am herewith a question today with respect to bill of exchange incase of avalization.

    – Client presented document with covering letter stating “ documents to be released against acceptance of draft and to be avalized by Collecting Bank “
    My question is the bill of exchange to be drawn on Drawee or Collection bank incase of avalization.

    Best Regards,
    SAR

    Reply

    • mroldman

      November 26, 2015 at 8:51 am

      Dear Sar,

      My quick answer is that under documentary collection transaction the bill of exchange is drawn on the importer (drawee) and not on the bank that is instructed to avalize the bill of exchange.
      .
      I have ever answered a question on DCPro Discussion Forum regarding avalization under document collections transactions. I quote hereunder for your reference:
      .
      Quote
      It is recognized that avalization is existing but not popular under documentary collection transactions.
      From my experience in dealing with documentary collection transactions I see that less than one out of every 100 documentary collection transactions has the instruction that documents are to be released to the importer against acceptance and the collecting bank’s avalization added to the bill of exchange.
      The reasons may be that:
      – Avalization is not regulated under the URC;
      – Collecting banks are normally not ready to add its avalization to the bill of exchange under a documentary collection, especially when there is no financing agreement in advance between the collecting bank and the importer.
      The instruction that documents are to be released to the importer only against the importer’s acceptance and the collecting bank’s avalization added to the bill of exchange may lead to delayed delivery of the documents to the importer once the collecting bank refuses to aval the bill of exchange.
      To avoid any delay in delivery of the documents to the importer, the exporter that instructs the remitting bank to incorporate such an instruction should ensure that the importer’s bank is willing to add its avalization to the bill of exchange.
      The idea that avalization should be included in the coming URC to handle such situations is good enough. Why not? Express stipulations with regard to avalization could help smoothen the transaction process.
      Unquote
      .
      Hope it is helpful.
      .
      Kind regards,
      Mr. Old Man

      Reply

  2. Tuong van

    April 25, 2017 at 9:20 pm

    em muốn follow qua email thì phải làm sao ạ, em tìm hoài không thấy

    Reply

    • mroldman

      May 1, 2017 at 8:52 pm

      Bạn cần có tài khoản wordpress! Khi bạn click follow, những cập nhật của trang này sẽ báo cho bạn qua email.

      Reply

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