payment/negotiation commission when bank does not pay or neg
Posted: Mon Nov 01, 2010 12:00 am
Dear all,
Can is ask for your views on practice.
I have two related questions base on real transaction situations but I have simplified the details slightly for the sake of clarity. Please assume LC amounts in both cases are identical ( as in reality almost the same) in fact this related to two separate underlying transactions with the same customers, one after the other.
Situation 1
LC issued by Issuing Bank available with Nominated Bank by Sight Payment with reimbursement to be claimed by Nominated Bank claiming on Issuing Banks dollar correspondent on presentation of complying documents.
This LC was not Confirmed.
When the beneficiary presented complying documents to the Nominated Bank, the Nominated Bank examined them and they complied so claimed reimbursement from Reimbursing Bank and credited account of beneficiary.
The documents were then sent to the Issuing Bank and they were not rejected.
In this case the Nominated Bank charged the beneficiary a ‘Payment Commission’ of .2 % of the presentation value.
Situation 2
The same LC Issuing Bank later issued another LC available by Negotiation of Sight Drafts to be drawn on Issuing Bank but LC available by Negotiation with same Nominated Bank , including typical settlement instructions from Issuing Bank for Negotiation LC that settlement of LC would be made on receipt by Issuing Bank of the documents.
This LC was not Confirmed.
When the beneficiary presented the documents, they were examined by the Nominated Bank who then forwarded the documents to the Issuing Bank and waited for the proceeds.
The documents were not rejected by the Issuing Bank and after examination pm receipt by the Issuing Bank remitted the final proceeds to the Nominated Bank.
Upon receipt of proceeds from Issuing Bank the Nominated Bank passed the proceeds to the Beneficiary’s account.
In this case the Nominated Bank also charged the beneficiary a ‘Payment Commission’ of .2 % of the presentation value.
In my opinion the Payment Commission charged by the Nominated Bank in Situation 1 (totaling USD4,500.00) is valid and justified as the Nominated Bank ‘actually paid’ and in doing so took a risk in paying at sight - as if the documents were justly rejected by the Issuing Bank they the Nominated Bank may not have been reimbursed.
In my opinion the Payment Commission charged by the Nominated Bank in Situation 2 (totaling USD4,500.00) is not justified as the Nominated Bank only waited until the final proceeds arrived from the Issuing Bank before crediting the account of the Beneficiary.
In my view in the Situation 2 the Nominated Bank could charge a modest fee, similar to a deduction on a clean payment or bank transfer for processing the payment order settlement from the Issuing Bank.
Your views would be greatly appreciated.
Svetlana
Can is ask for your views on practice.
I have two related questions base on real transaction situations but I have simplified the details slightly for the sake of clarity. Please assume LC amounts in both cases are identical ( as in reality almost the same) in fact this related to two separate underlying transactions with the same customers, one after the other.
Situation 1
LC issued by Issuing Bank available with Nominated Bank by Sight Payment with reimbursement to be claimed by Nominated Bank claiming on Issuing Banks dollar correspondent on presentation of complying documents.
This LC was not Confirmed.
When the beneficiary presented complying documents to the Nominated Bank, the Nominated Bank examined them and they complied so claimed reimbursement from Reimbursing Bank and credited account of beneficiary.
The documents were then sent to the Issuing Bank and they were not rejected.
In this case the Nominated Bank charged the beneficiary a ‘Payment Commission’ of .2 % of the presentation value.
Situation 2
The same LC Issuing Bank later issued another LC available by Negotiation of Sight Drafts to be drawn on Issuing Bank but LC available by Negotiation with same Nominated Bank , including typical settlement instructions from Issuing Bank for Negotiation LC that settlement of LC would be made on receipt by Issuing Bank of the documents.
This LC was not Confirmed.
When the beneficiary presented the documents, they were examined by the Nominated Bank who then forwarded the documents to the Issuing Bank and waited for the proceeds.
The documents were not rejected by the Issuing Bank and after examination pm receipt by the Issuing Bank remitted the final proceeds to the Nominated Bank.
Upon receipt of proceeds from Issuing Bank the Nominated Bank passed the proceeds to the Beneficiary’s account.
In this case the Nominated Bank also charged the beneficiary a ‘Payment Commission’ of .2 % of the presentation value.
In my opinion the Payment Commission charged by the Nominated Bank in Situation 1 (totaling USD4,500.00) is valid and justified as the Nominated Bank ‘actually paid’ and in doing so took a risk in paying at sight - as if the documents were justly rejected by the Issuing Bank they the Nominated Bank may not have been reimbursed.
In my opinion the Payment Commission charged by the Nominated Bank in Situation 2 (totaling USD4,500.00) is not justified as the Nominated Bank only waited until the final proceeds arrived from the Issuing Bank before crediting the account of the Beneficiary.
In my view in the Situation 2 the Nominated Bank could charge a modest fee, similar to a deduction on a clean payment or bank transfer for processing the payment order settlement from the Issuing Bank.
Your views would be greatly appreciated.
Svetlana