Payment under confirmed letters of credit
Payment under confirmed letters of credit
Is the confirming bank obliged to pay the beneficiary immediately after establishing that the docs comply to the L/C prior to obtaining payment from the isueing bank.
Payment under confirmed letters of credit
It does not matter if you pay immediately or not (actually it depends on how the credit is available) or if you pay after having received funds or not from the issuing bank. What matters is that you will have to pay the beneficiary even if you do not receive the funds from the issuing bank. It is what confirmation is for.
Daniel
Daniel
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JudithAutié
- Posts: 195
- Joined: Fri Apr 05, 2019 5:20 pm
Payment under confirmed letters of credit
A confirming bank gives its independant irrevocable undertaking to honour or negotiate, according to the terms of the credit. Thus if the credit is available by sight payment, the confirming bank pays at sight, whether or not the funds have been received from the issuing bank.
However, I have often seen confirmations reading "we shall effect payment X days after we have found documents strictly complying". Absent such a condition in the confirmation advice to the beneficiary, a sight payment is a sight payment and the confirming bank should not wait to receive the funds from the issuing bank.
regards
Judith
However, I have often seen confirmations reading "we shall effect payment X days after we have found documents strictly complying". Absent such a condition in the confirmation advice to the beneficiary, a sight payment is a sight payment and the confirming bank should not wait to receive the funds from the issuing bank.
regards
Judith
Payment under confirmed letters of credit
The confirming bank should not be left out of pocket with interest charges. The drawing could be for tens of millions of dollars and the interest can therefore be in the thousands, even if reimbursement is just one day late.
There are varying ways a confirming bank can be reimbursed by the issuing bank and the confirming bank should pay the beneficiary for the same value date as they expect to receive reimbursement.
If the L/C states that reimbursement will be effected XX days after date of receipt of reimbursement claim, then the confirming bank should pay on that day (and not wait to see the funds on their account the following day).
If reimbursement is received late then the confirming bank should claim interest from the issuing bank.
My advice would always be to make sure you know when you will be reimbursed before adding confirmation to avoid any losses.
Regards
David
There are varying ways a confirming bank can be reimbursed by the issuing bank and the confirming bank should pay the beneficiary for the same value date as they expect to receive reimbursement.
If the L/C states that reimbursement will be effected XX days after date of receipt of reimbursement claim, then the confirming bank should pay on that day (and not wait to see the funds on their account the following day).
If reimbursement is received late then the confirming bank should claim interest from the issuing bank.
My advice would always be to make sure you know when you will be reimbursed before adding confirmation to avoid any losses.
Regards
David
Payment under confirmed letters of credit
David,
You seem to take it for granted that you will be reimbursed.
Does not "confirmation" implies uncertainty.
Daniel
You seem to take it for granted that you will be reimbursed.
Does not "confirmation" implies uncertainty.
Daniel
Payment under confirmed letters of credit
Hi Daniel,
I agree there is a certain degree of uncertainty and that the point of the confirmation is to protect the beneficiary, as much as possible, from such unknowns.
However, it should be good practice for a confirming bank to know when they should be reimbursed if no problems arise. Therefore, as previously stated, the nominated (confirming) bank should give their undertaking to pay the beneficiary on that same date, whether reimbursement arrives or not.
The point I was trying to make is that although the confirming bank is obliged to pay the beneficiary, they don't have to pay immediately if the L/C states that they will only receive reimbursement a few days later.
Rgds
I agree there is a certain degree of uncertainty and that the point of the confirmation is to protect the beneficiary, as much as possible, from such unknowns.
However, it should be good practice for a confirming bank to know when they should be reimbursed if no problems arise. Therefore, as previously stated, the nominated (confirming) bank should give their undertaking to pay the beneficiary on that same date, whether reimbursement arrives or not.
The point I was trying to make is that although the confirming bank is obliged to pay the beneficiary, they don't have to pay immediately if the L/C states that they will only receive reimbursement a few days later.
Rgds