QUERY
Usance Letters of Credit
We see usance Letters of Credit issued available with a bank by acceptance or negotiation. What is the difference and what are the advantages or disadvantages for an Issuing Bank or a Nominated Bank.
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COMMENT
Usance L/C available by negotiation
Hi,
For your reference I would like to quote my old comment of 2007 in this forum to a similar query.
Acceptance LCs and deferred payment LCs are usance LCs. The difference is that the acceptance LC requires a time draft, whereas the deferred payment LC does not.
Under acceptance LC, the beneficiary may receive the payment before the draft is due by discounting the accepted draft at its bank or discounting it on forfaiting markets (as the accepted draft is a financial instrument which can be transferable).
Is it possible for the bank to open an LC available by negotiation in case of usance LC ?
It is possible but the question is whether the beneficiary or his negotiating bank accepts such a strange type of LC.
To evidence the possibility, I ‘d like to quote hereunder some swift fields of an LC which my bank as an advising/negotiating bank has received from Bank A in Korea:
= quote =
41D: Available with …. By ……
ANY BANK BY NEGOTIATION
42C: Drafts at ….
BENEFICIARY DRAFTS 90 DAYS AFTER B/L DATE
42A: Drawee
BANK B
53A: Reimbursing bank
BANK B
……..
78: Instructions to the Paying/Accepting/Negotiating Bank
+ BENEFICIARY TIME DRAFT SHALL BE NEGOTIATED ON AT SIGHT BASIS AND SHOULD BE FORWARDED TO THE DRAWEE BANK (BANK B).
+ ALL DOCUMENTS MUST BE FORWARDED DIRECTLY TO US (BANK A) IN ONE LOT BY COURIER SERVICES
= unquote =
By appearance, it looks like an acceptance LC as it requires time drafts (90 days after B/L date). However, it is in fact a sight LC as it allows the beneficiary to negotiate the time drafts on at sight basis.
This type of L/C is called UPAS (Usance Paid At Sight). LC Sam had a very interesting comment on UPAS. You can find it in this forum by searching the term “UPAS” or just control + click the following link: http://www.letterofcreditforum.com/content/under-letter-credit
Best regards,
Nguyen Huu Duc …
