Mr Old Man Payment Q&A Unpacking a New LC Payment Practice: MT103 at Port of Loading? By Mr Old Man Posted on 2 days ago 5 min read 0 0 8 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUESTION Dear Mr. Old Man, Thank you very much for your reply and guidance. I have benefited a great deal from your explanations. Regarding the payment method mentioned in my previous email, I learned of a new practice yesterday and would like to ask for your assessment: The transaction method I referred to has gradually developed in recent years. Currently, in many bulk commodity transactions, sellers often require a similar payment process (let’s set aside the issue of the seller’s document submission timeline for now). Some Chinese traders/issuing applicants with practical experience explain that this is not about using two payment instruments simultaneously. Instead, when the buyer issues a DLC/MT700, it is stipulated in the L/C that after the seller submits compliant documents, the issuing bank or its designated reimbursing bank will make payment via MT103. Specifically, there are two operational methods: LC stipulates, for example: Field 47A (Additional Conditions): SPECIAL PAYMENT CONDITIONS: PAYMENT AT PORT OF LOADING, AGAINST EXPORT DOCUMENTS VERIFIED BY SGS, BUREAU VERITAS OR OTHER INTERNATIONAL STANDARD CERTIFICATION COMPANY WITHIN 3 WORKING DAYS VIA MT103 CASH. Field 78 (Instructions to the Paying/Accepting/Negotiating Bank): After the negotiating bank presents compliant documents, the issuing bank will reimburse the negotiating bank’s designated account via MT103 format. The reimbursement details are as follows… I wonder if you have encountered the above two methods and whether they are feasible in practical operations. I am not necessarily determined to close the deal with that copper concentrate seller; I just want to thoroughly understand this payment model. Best regards, Xu Mengnan ___________ ANSWER Hi Mengnan, I understand this method may be gaining traction in some bulk commodity trades, particularly in China. However, from the standpoint of UCP 600 and standard international banking practice, it is highly irregular. Under a documentary credit, the issuing bank undertakes to honour a complying presentation. If export documents are verified by entities such as SGS or Bureau Veritas, such verification should take the form of a certificate — one among the documents in the presentation. However, the idea of making MT103 payment at port of loading upon inspection, without full document checking at the issuing bank, poses significant risk. Only banks unfamiliar with these risks may entertain such conditions, and in some cases, this structure has been used in fraudulent schemes. Also important to note: when the negotiating bank claims reimbursement, it instructs the issuing or reimbursing bank to transfer funds to the nominated bank’s account, not directly to the beneficiary. This is typically done via SWIFT MT202, not MT103. MT103 is used for customer credit transfers (i.e. from bank to beneficiary). MT202 is used for bank-to-bank payments, which is the correct format for LC reimbursements. If this type of payment structure is becoming common in China, it may reflect local practice or informal arrangements — though not one aligned with globally accepted LC operations. Or maybe Mr. Old Man needs to cycle a bit faster to catch up with the times! Best regards, Mr. Old Man