Categories
LC / SBLC Process & Procedures Trade Finance

Letter of Credit Application – Payment Method at Sight, deferred payment, acceptance or negotiation

What should appear in the settlement type field?

An indication of the settlement terms applicable to the beneficiary. This should conform to the requirements expressed in the sale contract, proforma invoice or purchase order.

If the beneficiary requires settlement “at sight”, the options are payment or negotiation. 

From an applicant perspective, and where the beneficiary has not given an indication of preference, a documentary credit available by negotiation at sight would be the preferred option. 

If a documentary credit is available by sight payment, the nominated bank is provided with access to immediate funds of the issuing bank. The applicant will be responsible for the interest costs arising between the date of the issuing bank’s account being debited by the nominated bank and the date the applicant’s account is debited.

If a documentary credit is available by sight negotiation, the beneficiary has a choice of receiving immediate funds (in which case it is responsible for the payment of interest), or to await the remittance of proceeds by the issuing bank. The applicant’s account will only be debited on the date that the issuing bank provides reimbursement to the nominated bank.

Main UCP considerations

Sub-article 6 (b) requires that each documentary credit indicate whether it is available by payment, deferred payment, acceptance or negotiation.

What should appear in the settlement type field?

If the beneficiary requires settlement in the future, the options are deferred payment, acceptance or negotiation. From an applicant perspective, and where the beneficiary has not given an indication of a preference when a documentary credit is to be payable XXX days after sight, an availability of negotiation at XXX days sight would be the preferred option. 

If the documentary credit is available by negotiation, the due date will be XXX days after the date the documents are received by the issuing bank. Whereas, when it is available with a nominated bank or any bank by deferred payment or acceptance, the due date will be XXX days after the nominated bank receives the documents.

When a documentary credit is to be available at XXX days after the date of shipment, date of a document or date of an event, it generally matters not which form of availability is indicated. When given the choice, a beneficiary will often prefer deferred payment or acceptance.

Main UCP considerations

Sub-article 6 (b) requires that each documentary credit indicate whether it is available by payment, deferred payment, acceptance or negotiation.

Categories
LC / SBLC Process & Procedures Trade Finance

Letter of Credit Application – Available with Which Bank

What should appear in the bank field?

The bank to whom the beneficiary may present its documents for payment, deferred payment, acceptance or negotiation (when other than the issuing bank, this bank is referred to as the nominated bank). When the nominated bank is the advising bank or any bank, the beneficiary also has the choice of presenting its documents directly to the issuing bank.

When this field indicates that the documentary credit is available with any bank, the beneficiary may present its documents to any bank. The scope of the term ‘any bank’ will be narrowed by the inclusion of the name of a city or country as part of the expiry date details referred to earlier in this module, in which case it is any bank in the named city or country that may pay, accept a draft, incur a deferred payment undertaking or negotiate.  

Wherever possible, situations should be avoided where the place of the bank with which the documentary credit is to be available is different from the place of expiry. 

Main UCP considerations

Sub-article 6 (a) indicates that a documentary credit must state the bank with which it is available or whether it is available with any bank.

Sub-article 6 (b) requires that each documentary credit indicate whether it is available by payment, deferred payment, acceptance or negotiation.